Key Takeaway
The Housing Opportunity Through Modernization Act (HOTMA) LIHTC provisions take effect January 1, 2027. The biggest changes: a $50,000 net family asset self-certification threshold, retirement account exclusions from asset calculations, and revised income determination rules. Compliance teams that wait until Q4 2026 to prepare will face audit exposure from Day One.
What Is HOTMA and Why Does It Matter for LIHTC?
HOTMA (Public Law 114-201) was signed into law on July 29, 2016, but its implementation has been a decade-long process. HUD published the final rule on February 14, 2023 (88 FR 9600), with staggered effective dates depending on program type. For Low-Income Housing Tax Credit (LIHTC) properties specifically, the provisions governing income and asset calculations take effect January 1, 2027.
This matters because HOTMA fundamentally changes how you calculate tenant income and assets for LIHTC qualification — the core compliance activity that every affordable housing property performs annually. Get it wrong, and you risk IRS Form 8823 findings, recapture of credits, and investor scrutiny.
HOTMA Timeline: How We Got Here
| Date | Event |
|---|---|
| July 29, 2016 | HOTMA signed into law (Public Law 114-201) |
| February 14, 2023 | HUD final rule published (88 FR 9600) |
| January 1, 2024 | Section 8 / Public Housing provisions effective |
| January 1, 2025 | Additional HUD program provisions effective |
| January 1, 2027 | LIHTC-specific provisions effective |
The staggered timeline means HUD-assisted programs are already operating under HOTMA rules. LIHTC properties get additional time because the IRS, not HUD, administers the tax credit program — and the IRS needed time to align IRC §42 regulations with HUD’s revised definitions. According to Novogradac, the IRS is expected to issue guidance in 2026 clarifying how HOTMA intersects with existing LIHTC revenue rulings.
What Is the $50,000 Asset Self-Certification Threshold?
Under HOTMA, tenants with net family assets at or below $50,000 can self-certify their asset value without third-party verification. This is a significant change from current practice, where most state Housing Finance Agencies (HFAs) require documentation of all assets regardless of value.
Here’s what this means in practice:
- At or below $50,000 in net family assets: The tenant signs a self-certification form declaring their asset types and values. No bank statements, brokerage statements, or other third-party documentation required.
- Above $50,000 in net family assets: Full third-party verification is required, just as under current rules.
According to HUD’s Supplementary Information in the final rule, this threshold was set to reduce administrative burden on both tenants and property managers while maintaining program integrity. The $50,000 figure covers the vast majority of LIHTC-qualifying households — HUD estimates that over 85% of tenant households in affordable housing have net family assets below this threshold.
Compliance Note: Even with self-certification, you must still calculate imputed asset income (the greater of actual income from assets or imputed income using HUD’s passbook savings rate) when net family assets exceed $5,000. Self-certification changes the verification method, not the income calculation.
Which Retirement Accounts Are Excluded from Net Family Assets?
HOTMA excludes the following retirement accounts from net family asset calculations under 24 CFR §5.603:
- Individual Retirement Accounts (IRAs) — Traditional and Roth
- 401(k) plans — Including employer-sponsored 403(b), 457, and TSP accounts
- Pension funds — Defined benefit and defined contribution plans
- Keogh plans — Self-employed retirement accounts
- Other tax-advantaged retirement accounts — As defined under the Internal Revenue Code
This is a major shift. Under pre-HOTMA rules, the value of retirement accounts was included in net family assets, and the imputed income from those accounts could affect a tenant’s LIHTC eligibility. A tenant with a $75,000 401(k) from a prior career could have that balance counted against them — even though accessing those funds before age 59½ would trigger penalties.
Under HOTMA, that same $75,000 401(k) is simply excluded. It doesn’t count toward the $50,000 self-certification threshold, and it doesn’t generate imputed asset income.
How Does HOTMA Change Income Calculation for LIHTC?
HOTMA aligns LIHTC income determination more closely with HUD’s Section 8 methodology. The key changes under 26 USC §42 as modified by HOTMA include:
1. Net Family Assets vs. Gross Assets
Pre-HOTMA, many HFAs used gross asset values. HOTMA standardizes the use of net family assets — meaning you deduct reasonable costs of converting assets to cash (e.g., early withdrawal penalties, closing costs on real estate, outstanding liens). This typically reduces the reported asset value.
2. Income from Assets Calculation
When net family assets exceed $5,000, you calculate imputed asset income using the HUD-determined passbook savings rate (currently 0.06%, published annually in a Federal Register notice). You then use the greater of actual income from assets or imputed income. With retirement account exclusions, this calculation changes significantly for many tenants.
3. Hardship Exemptions for Asset Disposition
HOTMA adds provisions for tenants who dispose of assets for less than fair market value within two years of the income determination. However, hardship exemptions may apply when disposition was involuntary (foreclosure, bankruptcy, divorce decree).
Pre-HOTMA vs. Post-HOTMA: Side-by-Side Comparison
| Provision | Pre-HOTMA (Current) | Post-HOTMA (Jan 1, 2027) |
|---|---|---|
| Self-certification threshold | Varies by HFA (often $0 — all assets verified) | $50,000 net family assets |
| Retirement account treatment | Included in net family assets | Excluded (IRAs, 401(k)s, pensions) |
| Asset valuation method | Gross assets (varies by HFA) | Net family assets (standardized) |
| Imputed income threshold | $5,000 in assets | $5,000 in net family assets (excl. retirement) |
| Passbook savings rate source | HUD-published rate | HUD-published rate (unchanged) |
| Income look-back period | Anticipated annual income | Anticipated annual income (with new safe harbors) |
| Over-income tenants | Next Available Unit Rule applies | Next Available Unit Rule applies (140% AMI threshold unchanged) |
| Student financial aid | Counted as income (with exceptions) | Revised treatment — see student rule guide |
What Should Compliance Teams Do NOW to Prepare?
January 2027 sounds far away, but compliance preparation takes time. Here’s a phased approach:
Q3 2026: Policy and Training
- Review your HFA’s HOTMA guidance. Each state HFA will issue implementation guidance. California’s TCAC, for example, will update its compliance manual. Monitor your HFA’s website and attend any HOTMA webinars they offer.
- Update your Tenant Income Certification (TIC) forms. Current TIC forms likely don’t have fields for the self-certification threshold or retirement account exclusions. Work with your compliance software vendor or forms provider to get updated forms ready.
- Train your compliance staff. Every certifications specialist needs to understand the new asset calculation methodology. Focus on the retirement account exclusion — it’s the change most likely to affect eligibility determinations.
Q4 2026: System and Process Updates
- Update your compliance software settings. Ensure your income calculation engine reflects HOTMA rules for any certifications effective on or after January 1, 2027.
- Create new self-certification forms. You’ll need a form for tenants with net family assets at or below $50,000 that captures the required attestation.
- Audit your current tenant files. Identify tenants whose asset calculations will change under HOTMA. Some may newly qualify; others may see changes in their income determination.
- Coordinate with investors and syndicators. Your tax credit investors will want to know your HOTMA readiness plan. Proactive communication builds confidence.
Q1 2027: Go-Live
- Apply HOTMA rules to all certifications effective January 1, 2027 or later. Annual recertifications, initial certifications, and interim recertifications all use the new methodology.
- Don’t retroactively apply HOTMA to existing certifications. Certifications completed before January 1, 2027 remain valid under pre-HOTMA rules through their effective period.
- Document your transition. Keep a compliance memo in your files explaining which certifications used pre-HOTMA vs. post-HOTMA methodology, in case of audit.
How Does HOTMA Affect the Next Available Unit Rule?
The Next Available Unit Rule under IRC §42(g)(2)(D) is not substantially changed by HOTMA. Tenants whose income exceeds 140% of the applicable income limit at recertification still trigger the rule — the next available comparable unit must be rented to a qualifying tenant. However, because HOTMA changes how income is calculated (retirement account exclusions, net asset methodology), some tenants who previously appeared over-income may now fall below the threshold.
For a deeper dive into the Next Available Unit Rule, see our LIHTC rent calculation guide.
Common Questions About HOTMA and LIHTC
Does HOTMA apply to all LIHTC properties?
Yes. HOTMA’s income and asset provisions apply to all properties receiving Low-Income Housing Tax Credits under IRC §42, regardless of the placed-in-service date or whether they also receive HUD assistance.
What if my state HFA has different rules?
State HFAs can impose additional requirements on top of HOTMA, but they cannot waive HOTMA’s provisions. If your HFA currently requires verification of all assets regardless of value, they will need to update their policy to allow self-certification below $50,000 — or they must provide a regulatory basis for the stricter standard.
Do I need to recertify all tenants on January 1, 2027?
No. Apply HOTMA rules to certifications with effective dates on or after January 1, 2027. Existing certifications remain valid through their current effective period.
Try the Free HOTMA Asset Calculator
Calculating net family assets under HOTMA’s new rules — with retirement account exclusions and the $50,000 self-certification threshold — involves multiple steps. Our free HOTMA Asset Calculator walks you through the calculation and tells you whether self-certification is permissible for each household.
For questions about how HOTMA applies to your specific portfolio, ask our AI Compliance Advisor — it’s trained on the full HOTMA final rule and current IRS guidance.