IRS Excludes Veteran Disability Benefits from Income Calculations
This should make it easier for veterans to qualify for affordable housing.
The IRS recently released Revenue Procedure 2024-38, which provides guidance on the alternative income eligibility requirements for the Department of Housing and Urban Development–Veterans Affairs Supportive Housing (HUD–VASH) program.
The HUD-VASH program is a joint effort between HUD and the Department of Veterans Affairs (VA) to move veterans and their families out of homelessness and into permanent housing. The program combines HUD’s Housing Choice Voucher (HCV) rental assistance for homeless veterans with case management and clinical services provided by the VA. And the VA provides these services for participating veterans at VA medical centers (VAMCs), community-based outreach clinics, through VA contractors, or through other VA designated entities.
According to HUD, since the program’s inception, HUD-VASH has helped more than 200,000 veterans exit homelessness and obtain permanent affordable housing. And the HUD-VASH program has been the cornerstone of our nation’s success in reducing the number of veterans experiencing homelessness by more than 50 percent since 2010.
Income Determination
To qualify to live in a LIHTC and PABs development, a household’s anticipated gross income must be determined to be under the applicable income limits. Also, the amount of assistance paid on behalf of a tenant under various HUD programs is calculated using the family’s annual income and subtracting allowable deductions. HUD programs specify the types and amounts of income and deductions that are included in the calculation of annual and adjusted income.
Homeless veterans often receive VA benefits as a result of an injury or illness that was acquired or worsened during military service. These benefits were considered income when determining eligibility for certain supportive housing developments, which caused some veterans to exceed the income threshold for these programs.
The IRS guidance says VA service-connected disability benefits should be excluded from income for purposes of determining veterans’ eligibility for LIHTC sites. The IRS released this guidance to address concerns that veterans receiving VA disability benefits were often disqualified from these sites due to exceeding income limits. For example, there were concerns about homeless veterans not being able to qualify for LIHTC units especially when those units may have had deeper income restrictions as a result of average income designations or other funding sources. Excluding the VA service-connected disability benefits is expected to make it easier for veterans to qualify for affordable housing.
Revenue Procedure Applicability
Revenue Procedure 2024-38 is directly applicable to LIHTC sites only. However, HUD has published a notice with the same exclusions in August 2024. At the time, HUD published HUD-VASH Notice “Section 8 Housing Choice Vouchers: Revised Implementation of the HUD–Veterans Affairs Supportive Housing Program.” The notice provided new requirements for determining income for purposes of eligibility of HUD-VASH applicants that receive VA service-connected disability benefits.
The notice’s main priority is to ensure that homeless veterans are not excluded from participation in the HUD-VASH program because of their VA service-connected disability benefits. With the notice, HUD expanded access to HUD-VASH for veterans by:
Excluding service-connected disability benefits from income calculations: HUD adopted an alternative definition of annual income for applicants and participants of the HUD-VASH program that excludes veterans’ service-connected disability benefits when determining eligibility.
Setting initial income eligibility at 80 percent of AMI: HUD requires PHAs that administer HUD-VASH to set the initial income eligibility for veterans at 80 percent of area median income (AMI), rather than 50 percent of AMI. The use of this higher initial income eligibility threshold was optional, but HUD has made this increase mandatory.
Non-competitive awards of project-based HUD-VASH contracts: This flexibility allows for noncompetitive selection of one or more project-based voucher projects where all units serve HUD-VASH families at a VA facility.
Exception payment standards: Approval of up to 140 percent of the Fair Market Rent as a reasonable accommodation for a person with a disability but only with HUD approval.
Separate minimum rent policies: This flexibility allows PHAs the option for zero minimum rent for their HUD-VASH program.