How to Classify Six Items that May Be Treated as Income or Assets
When certifying or recertifying households, you must list both the household’s income and its assets. However, deciding whether to treat an item as income or an asset can be tricky. If you treat an item incorrectly, you will make a certification mistake that could result in a HUD audit or costly penalties.
The following are six items that could be treated as either income or assets. We will explain the deciding factors in each case and tell you how HUD Handbook 4350.3 says to treat these items.
Item #1: Payment of Trust Principal
If a resident is the beneficiary of money that is held in trust, treat the money as an asset or income depending on whether the resident can touch the trust principal.
When to treat as asset. If a household member gets the capital from a trust all at once, it is considered a lump-sum payment that you must treat as an asset [Handbook 4350.3, par. 5-7(G)(1)(b)(5)].
When to treat as income. If a resident gets money from the trust in periodic payments, you must treat the payments as income because they are considered gifts. This rule applies even though these payments don’t include any interest from the trust [Handbook 4350.3, par. 5-7(G)(1)(b)(5)].
Item #2: Annuities
You may treat a resident’s annuity as an asset or income.
When to treat as asset. If a household member has the right to withdraw the balance of the annuity, you must treat the annuity as an asset. This is true whether or not the resident also gets payments from the annuity [Handbook 4350.3, par. 5-7(G)(2)(C)(1)].
When to treat as income. If a resident gets annuity payments, you must treat those payments as income, to the extent that the amount exceeds the amount of the resident’s investment in the annuity. Note that if a resident has already begun getting annuity payments, this usually means that the resident is not permitted to convert the annuity to a lump sum. This restriction is another reason you should not count the annuity as an asset [Handbook 4350.3, par. 5-7(G)(2)(b)(2)].
Item #3: Retirement Account Balances
Whether or not a resident has retired, you can treat a retirement account as income or as an asset.
When to treat as asset. IRA, Keogh, and similar retirement savings accounts are counted as assets, even though withdrawal would result in a penalty, unless benefits are being received through periodic payments. If a resident can touch the account balance, you must treat the account as an asset. This is true even if the resident remains employed, and even if withdrawal triggers a penalty [Handbook 4350.3, par. 5-7 (G)(4)(b)].
For example, suppose a resident’s 401(k) account balance is $35,000. He is able to terminate his participation in the retirement plan without quitting his job, but if he did so he would lose a part of his employer’s contribution and would pay a penalty fee. The total cash he could withdraw, $18,000, is the amount that is counted as an asset.
When to treat as income. If a resident withdraws part of the balance in his retirement account in periodic payments, you must count these payments as income. Do not count any remaining amounts in the account as an asset [Handbook 4350.3, par. 5-7(G)(4)(d)].
Item #4: Mortgage Payments
A resident might be a mortgagee—that is, the resident lent money to someone (the mortgagor) to buy real estate using a mortgage, or a “deed of trust,” as it is known in some states. In that case, the resident should get regular payments on her mortgage from the mortgagor [Handbook 4350.3, par. 5-7(G)(7)].
When to treat as asset. If a household member gets payments that include amounts intended to pay down the principal, don’t treat these amounts as income. Instead, subtract all such payments from the original principal amount of the mortgage, and treat the mortgage as an asset based on this new amount [Handbook 4350.3, par. 5-7(G)(7)(b)].
When to treat as income. Payments that a resident gets on a mortgage are likely to include an amount that represents the mortgage interest. Treat this amount as income [Handbook 4350.3, par. 5-7(G)(7)(b)].
Item #5: Lottery Prizes
A resident may report winning a state or local lottery.
When to treat as asset. If the prize is paid in one lump sum, treat the prize as an asset [Handbook 4350.3, pars. 5-6(Q)(5), 5-7(G)(3)(a)(3)].
When to treat as income. If the prize is paid out in periodic payments, treat the prize as income [Handbook 4350.3, par. 5-6(Q)(5)].
Item #6: Delayed Lump-Sum Payments of Benefits
Delayed payments from welfare, unemployment, Social Security Disability, or similar benefits received in a lump sum are regarded as income if there has been an interim recertification [Handbook 4350.3, par. 5-6(Q)(4)].
For example, suppose a resident is a participant in a welfare program. The Department of Welfare terminates the resident’s benefits, and the resident requests an interim recertification. The rent is reduced, and housing assistance is increased. The resident then appeals to restore his welfare benefits, wins the appeal, and receives a lump sum representing lost benefits, which are now restored. The lump sum should be treated as income.
Similarly, suppose the resident loses welfare benefits, and there has been no interim recertification lowering the rent. The resident continues to pay rent based on income, as if he were still getting the welfare benefits. Any subsequent restoration of welfare benefits received in a lump sum would be an asset (a one-time, nonrecurring lump sum). The item would not be treated as income merely because it has been counted as income all along.