HUD’s HOTMA: Asset Cap, Prior-Year Income, and 10% Rent Trigger

The Housing Opportunity Through Modernization Act of 2016, known as HOTMA, rewrote the core HUD rules that decide who qualifies for federal housing assistance, how income and assets are counted, and how quickly rent adjusts when a family’s situation changes. The law was signed on July 29, 2016, but its major income and asset provisions took effect January 1, 2024, and now apply across Public Housing and the Section 8 Housing Choice Voucher program.¹ For Community Planning and Development programs, the compliance deadline was extended to January 1, 2027.²

The $100,000 Asset Cap

Families whose net assets exceed $100,000 are generally ineligible for public housing or Section 8. The cap adjusts annually for inflation and is rechecked at every annual reexamination, not just at initial admission.³ The calculation covers cash, savings, stocks, bonds, and other investments at net cash value after reasonable disposal costs.

A long list of assets is excluded from the count, and the exclusions are what keep most families under the ceiling:⁴

Retirement accounts: IRAs, 401(k)s and other employer-sponsored plans, and retirement plans for the self-employed that are recognized by the IRS.
Necessary personal property: vehicles used for transportation, furniture, clothing, medical equipment, computers, phones, and professional tools.
Non-necessary personal property such as collectibles or recreational equipment, excluded as long as the combined value stays below $50,000 (adjusted annually).
Education and disability savings: Coverdell accounts, 529 college savings plans, and ABLE accounts under Section 529A of the Internal Revenue Code.
Baby bond accounts created or funded by federal, state, or local government.
Indian trust land interests, Family Self-Sufficiency accounts, federal tax refunds received within the past 12 months, legal settlements tied to a family member’s disability, and equity in a manufactured home or in property under the Section 8 Homeownership Option.

Self-Certification Below $52,787

Families whose net assets fall at or below $52,787 in 2026 can self-certify their asset levels instead of producing bank statements and other documentation.⁵ The threshold rises each year with inflation. Above that line but under $100,000, the housing provider must verify assets through documentation.

How Income From Assets Is Counted

The old rule compared actual income from assets against an imputed amount based on the passbook savings rate and used whichever was higher. HOTMA replaces that with a simpler approach: providers add actual income from all assets, and impute income only where actual income cannot be determined. The imputed income threshold also jumped from $5,000 to $50,000 (adjusted annually), so most families no longer have any imputed income added at all.⁶

Real Property That Disqualifies a Family

Owning real property suitable for occupancy can independently disqualify a family, even if their other assets fall well below $100,000.³ “Suitable” means the family has both a legal right to live there and the property is actually habitable. A family is not disqualified when any of the following apply:

The family lacks the legal authority to sell the property, such as when a co-owner disputes a sale.
The family lacks a legal right to reside in the property.
The property is not safe or fit for habitation.
The property is listed for sale, or the family member is a victim of domestic violence.

Housing providers assess real property at initial application and at each annual reexamination. Families who acquire real property while receiving assistance must report it, and suitability is assessed at that point.

Income Is Now Calculated From the Prior Year

One of the most practical changes is the shift to prior-year income as the default for annual reexaminations.⁷ Providers now look at what a family actually earned in the previous 12 months, usually verified through tax returns or wage records, rather than projecting the year ahead. Rent calculations become more stable, and the constant recalculations that came with fluctuating hours largely disappear.

Prior-year income is a default, not a straitjacket. When it clearly does not reflect the family’s current situation, such as after a recent job loss, the provider can use current income instead.

Small Math Errors Are Forgiven

Providers get some breathing room on minor mistakes. An error in calculating adjusted income is considered “de minimis” if it changes the monthly amount by $30 or less ($360 annually).⁸ Providers are not penalized during compliance reviews for these small errors, though they still must correct the certification. If the correction shows the family overpaid, they get a refund; if they underpaid, they are not liable for the difference.

Deductions and the New Medical Expense Threshold

HOTMA updated the standard deductions that reduce a family’s adjusted income before rent is set. For 2026:⁵

Elderly or disabled family deduction: $550 per household.
Dependent deduction: $500 per dependent.⁹

Both figures adjust annually with the Consumer Price Index.¹⁰

The bigger shift involves unreimbursed medical and disability-related expenses. Before HOTMA, elderly and disabled families could deduct these expenses once they exceeded 3% of annual income. HOTMA raises the threshold to 10%.¹⁰ A family earning $20,000 annually could previously deduct medical costs above $600; now the floor is $2,000. Families with moderate medical expenses may lose a deduction they relied on, which is why hardship exemptions exist.

Hardship Exemptions for Medical Expenses

Two categories of hardship relief soften the transition to the 10% threshold.¹¹

Phase-In Relief

Families who were already receiving a medical expense deduction under the old 3% rule as of January 1, 2024, qualify for a two-year phase-in. During the first year, the family can deduct expenses exceeding 5% of income. In the second year, the threshold rises to 7.5%. After 24 months, the full 10% threshold applies.

General Hardship Relief

Any elderly or disabled family whose medical expenses have increased or whose circumstances have changed can apply for this exemption, whether or not they previously received a medical deduction. Under this category, the family deducts expenses exceeding 5% of income. Relief lasts 90 days or until the hardship ends, whichever comes first, and providers can extend it in additional 90-day increments if the hardship continues. Families who exhaust the two-year phase-in can then apply for this relief and stay at the 5% threshold as long as the hardship persists.

Student Financial Assistance

HOTMA draws a hard line between two types of student aid.¹² All financial assistance under Title IV of the Higher Education Act is fully excluded from income. That covers Pell Grants, TEACH Grants, Federal Work-Study, Federal Perkins Loans, and Bureau of Indian Affairs student aid, and it applies even to amounts that exceed tuition and required fees.

Aid from other sources, including state or local grants, private scholarships, employer tuition assistance, and institutional grants, is excluded only up to the student’s “actual covered costs,” meaning charges from the institution for tuition, books, and supplies. Anything above covered costs, alone or combined with Title IV aid, counts as income. The order matters when a student has multiple awards: Title IV aid is subtracted from covered costs first, and non-Title IV aid is excluded only up to whatever covered costs remain.

Interim Reexaminations at the 10% Trigger

HOTMA replaces the patchwork of local reporting rules with a standardized 10% threshold.¹³ A housing provider must conduct an interim reexamination when a family’s adjusted income drops by 10% or more, so families facing a job loss or reduced hours get a rent cut without waiting for the annual review. Providers can set a lower threshold in their own policy, but 10% is the floor.

Income increases also trigger a mandatory interim reexamination at 10%, with one important carve-out: increases in earned income generally do not count toward the threshold unless the provider’s written policy specifically requires it, or the family already received an interim rent reduction during the same certification period. HUD structured it this way so families are not penalized for picking up extra work or getting a raise.

When the Rent Actually Changes

Timing depends on whether the family reported the change promptly:¹³

Rent decrease reported on time: effective the first day of the month after the reported change.
Rent decrease reported late: effective the first of the month after the provider completes the reexamination. A provider policy can allow retroactive decreases, but not further back than the date of the change or the effective date of the most recent prior reexamination.
Rent increase reported on time: effective the first of the month after a 30-day advance notice.
Rent increase reported late: applied retroactively to the first of the month following the date the income actually changed.

No rent change can be applied retroactively to a date before January 1, 2024. That cutoff prevents providers from reaching back into the pre-HOTMA period.

Over-Income Limits in Public Housing

Section 103 creates a mechanism to move families out of public housing once their income significantly exceeds local benchmarks. The over-income limit is the very low-income limit for the area multiplied by 2.4, which works out to roughly 120% of area median income.¹⁴ Families over that limit get a 24-month grace period.

During those two years, the provider must issue three written notices, each within 30 days of the income examination that finds the family over the limit: one at the initial determination, one after 12 months, and one at the end of the 24-month grace period. Each notice must explain what the provider will do under its policy.

Once the grace period ends, the provider has two choices: terminate the family’s lease within six months, or let the family stay and pay an alternative rent.¹⁵ The alternative rent is the higher of the Fair Market Rent for a similarly sized unit or the per-unit monthly subsidy (Operating Fund plus Capital Fund allocated to the unit). Either way, the family no longer receives a subsidized rate. The choice is set in the provider’s Admissions and Continued Occupancy Policy.

Penalties for Misreporting

The expanded verification requirements come with real consequences. According to HUD’s Office of Inspector General, families that misrepresent income or assets to obtain or keep assistance can face eviction, repayment of all overpaid rental assistance, fines up to $10,000, imprisonment for up to five years, and permanent disqualification from future assistance.¹⁶ State and local penalties may stack on top of the federal ones. The self-certification option below $52,787 makes compliance easier, but it also puts responsibility squarely on the family when the numbers are wrong.

1
U.S. Department of Housing and Urban Development. The Housing Opportunity Through Modernization Act of 2016
2
Federal Register. Housing Opportunity Through Modernization Act Implementation of Sections 102 and 104 Further
3
U.S. Department of Housing and Urban Development. HOTMA Net Family Assets
4
eCFR. 24 CFR 5.603 Definitions
5
HUD Office of Policy Development and Research. 2026 HUD Inflation-Adjusted Values
6
U.S. Department of Housing and Urban Development. HOTMA Net Family Assets Script
7
HUD Exchange. HOTMA Income and Assets
8
U.S. Department of Housing and Urban Development. HOTMA Talking Points for Multifamily Programs
9
U.S. Department of Housing and Urban Development. Notice PIH 2026-15
10
HUD Exchange. HOTMA Sections 102 and 104 Income and Assets Fact Sheet
11
HUD Exchange. Hardship Exemptions Resource Sheet
12
HUD Exchange. Student Aid and Financial Assistance Resource Sheet
13
HUD Exchange. Interim Income Reexaminations Resource Sheet
14
U.S. Department of Housing and Urban Development. Section 103 Over-Income Limits for Public Housing Families Fact Sheet
15
U.S. Department of Housing and Urban Development. PIH-2023-03 Supplemental Guidance for Implementation of Section 103
16
U.S. Department of Housing and Urban Development Office of Inspector General. Is Fraud Worth It