HOTMA Implementation
HOTMA Income and Asset Exclusions: A Practical Guide for HUD Multifamily
The Housing Opportunity Through Modernization Act rewrote the list of income and asset exclusions that HUD multifamily owners must apply. Here is what is excluded, what is still countable, and how to document each one before January 1, 2027.
HOTMA (the Housing Opportunity Through Modernization Act of 2016) changed the rules for what counts as income and assets in HUD multifamily housing. Those changes are now operational for HUD Multifamily, with the compliance deadline for Sections 102 and 104 set at January 1, 2027.
The most common mistakes we see in pre-HOTMA file reviews are not dramatic policy errors. They are small documentation gaps: a student financial aid letter left in the file without a note, a lump-sum withdrawal treated as income, or an asset excluded without the required written verification. This guide is built to prevent those gaps.
What changed under HOTMA
Before HOTMA, HUD multifamily owners applied the income and asset rules found in HUD Handbook 4350.3 REV-1, Change 4. HOTMA updated those rules through Sections 102 and 104 of the statute, and HUD is implementing them through Notice H 2025-07 and supporting guidance.
The practical changes fall into three buckets:
- New income exclusions that were not previously available in HUD multifamily programs.
- Revised asset rules, including the $50,000 net family assets threshold for self-certification.
- Tighter documentation requirements for items that owners are used to treating informally.
Until HUD releases a revised Handbook, operators must apply the existing Handbook where it does not conflict with HOTMA, and apply HOTMA notices where they do conflict. The more restrictive rule usually wins.
HOTMA income exclusions for HUD multifamily
HOTMA created a list of income exclusions that are now mandatory for HUD multifamily annual income calculations. If an amount falls under one of these exclusions, it does not count toward the household's annual income and should not affect eligibility or rent.
Student financial assistance
Grants, scholarships, and other financial assistance received by a student attending an institution of higher education is excluded. This includes Pell Grants, work-study awards used for education costs, and similar aid. The key is that the assistance is for education expenses and the recipient is a student. Document the award letter and the student status.
Lump-sum payments and inheritances
One-time, nonrecurring lump sums are generally excluded from annual income. This includes inheritances, insurance settlements, and some legal awards. Be careful: the asset that remains after the lump sum is deposited may still count toward net family assets.
Payments in lieu of earnings
Certain state and local program payments that are made in lieu of earnings, such as some short-term disability or family leave payments, may be excluded when they meet HOTMA criteria. Document the source and duration.
Adoption assistance and foster care payments
Payments for adoption assistance and foster care are excluded from annual income. This aligns HOTMA with LIHTC and HOME treatment, which most operators were already applying.
Certain veteran benefits and allowances
Specific veteran benefits and military allowances are excluded, including some subsistence and special pay categories. Operators should verify the specific payment type rather than assuming all veteran income is excluded.
Earned income of children
Earned income of children under 18 remains excluded, consistent with pre-HOTMA rules. Document the household member's age and the source of income.
Documentation tip: do not rely on tenant self-certification alone for most income exclusions. Keep the source document (award letter, court order, payment stub, or benefit statement) in the file and note the exclusion on the income worksheet.
HOTMA asset exclusions
HOTMA also changed how assets are counted. The headline is the $50,000 net family assets threshold, but the list of excluded assets matters just as much for day-to-day file work.
The $50,000 self-certification threshold
Households with net family assets of $50,000 or less (adjusted annually for inflation) may self-certify the value of those assets instead of providing third-party verification. Owners must still verify income from assets above applicable thresholds and document the self-certification properly. The threshold is a procedural shortcut, not a free pass on documentation.
Necessary personal property
Cars, furniture, clothing, and other personal property are not counted as assets. This is unchanged from pre-HOTMA rules, but files still get findings when a bank statement balance is mistakenly treated as an asset without removing normal personal property.
Interests in Indian trust lands
Interests in Indian trust lands and other properties held in trust for Native American tribes, members, or individuals are excluded from assets. This exclusion is important for properties serving tribal members or households with tribal income.
Term life insurance policies
Term life insurance policies without cash value are excluded. Whole life or other policies with cash surrender value are counted as assets to the extent of that cash value.
Retirement accounts and pension funds
Certain retirement accounts and pension funds are excluded under HOTMA. The specific rules differ by account type, so operators should verify each one rather than applying a blanket rule.
Assets not accessible to the family
Assets that are inaccessible to the family, such as property in probate or accounts frozen by court order, may be excluded. The file must include the legal document showing inaccessibility.
What is still counted as income
HOTMA added exclusions, but it did not eliminate the basics. The following items still count as annual income unless another specific exclusion applies:
- Wages, salaries, tips, and commissions.
- Self-employment income, computed after allowable business deductions.
- Social Security, pension, and annuity payments.
- Unemployment, disability, and workers' compensation (when not specifically excluded).
- Regular recurring gifts or allowances from persons outside the household.
- Net income from real and personal property that produces income.
- Imputed income from assets above the applicable threshold.
The most frequent file error is treating a recurring source as a one-time exclusion. If a payment arrives monthly or predictably, it is almost certainly income unless a specific HOTMA exclusion says otherwise.
How this differs from LIHTC and HOME
LIHTC and HOME implemented HOTMA-aligned income and asset rules earlier through IRS and HUD program guidance. Many operators assumed that LIHTC implementation automatically carried over to HUD multifamily. It did not.
| Topic | LIHTC / HOME | HUD Multifamily |
|---|---|---|
| Student aid | Generally excluded | Excluded under HOTMA; document student status |
| Lump sums | Typically excluded | Excluded; verify one-time nature |
| Asset threshold | No universal $50,000 self-certification | $50,000 net family assets threshold applies |
| Effective date | Already in practice | January 1, 2027 |
| Forms | State agency forms | HUD notices, lease addenda, EIV updates |
For layered properties, apply the more restrictive rule. If HUD multifamily requires a verification that LIHTC does not, the HUD rule governs at that unit.
Documentation checklist for each file
Use this checklist to verify that exclusions are supported in the tenant file before certification:
- Identify every income source and classify it as countable or excluded.
- Match each excluded amount to the specific HOTMA exclusion, statute, or notice.
- Keep the source document in the file: award letter, benefit statement, court order, or legal description.
- Note the exclusion on the income worksheet and the 50059/certification form.
- Calculate net family assets and compare to the $50,000 threshold before deciding on self-certification.
- Verify income from assets above the threshold, even when the asset itself is below $50,000.
- Review for recurring payments that were incorrectly classified as one-time exclusions.
- Update lease addenda and tenant selection plans to reflect HOTMA exclusions.
Frequently asked questions
Do the HOTMA exclusions apply to all HUD programs?
HOTMA Sections 102 and 104 apply to HUD Multifamily, Public Housing, and Housing Choice Voucher programs, but implementation timing and specific guidance vary. This guide focuses on HUD Multifamily with the January 1, 2027 deadline.
Can we rely on tenant self-certification for all assets under $50,000?
No. The $50,000 threshold applies to net family assets as a whole. If the household's total assets are $50,000 or less, the owner may accept self-certification for the value of those assets, but must still verify income from assets above applicable thresholds and document the self-certification properly.
Is a student loan excluded under HOTMA?
Student loans are generally not income; they are debt. Student financial assistance such as grants and scholarships used for education expenses is excluded. Do not confuse the two.
What happens if we apply the wrong exclusion?
An incorrect exclusion can result in understated annual income, over-subsidized rent, and findings during a Management & Occupancy Review. Correct it at the next certification and document the correction. If the error affected rent, retroactive adjustments may be required under HUD rules.
Does HOTMA change the student rule?
HOTMA's student income exclusion addresses financial assistance received by students. It does not eliminate the separate HUD student eligibility rule (commonly called the 'student rule'), which still applies where required by program.
HOTMA Readiness
Download the HOTMA 2027 Readiness Checklist
A 21-page working checklist for HUD multifamily owners. Covers income exclusions, asset rules, policy updates, staff training, and the documentation steps that keep files clean.