Real Estate as an Asset
Under Section 42 of the Tax Code, all assets must be accounted for, with the exception of assets that have been disposed of more than two years ago. Real estate is part of assets that must be counted. Since there are a few different types of real estate, calculating total assets can be confusing.
To determine the asset value of real estate that has been sold at market value, the cash value of the property and the imputed value (if it exceeds $5,000) must be calculated. You calculate the imputed value by taking the cash value and multiplying it by the current HUD passbook rate. Once those two calculations are completed, the higher of the two is determined and used. The cash value is determined by taking the actual value of the property and deducting the outstanding mortgage, closing costs, and any other applicable fees.
A household that is using their real estate as rental property may apply to live in your property. When dealing with this scenario, two calculations must be done. The cash value must be determined as noted above. The second calculation that must be done is to determine the monthly income that is received for rent. The actual income received is not what is included. Management must take that amount and subtract the mortgage and any applicable maintenance fees.
If a real estate asset has been foreclosed on then it will not be considered in the asset calculations, as the tenant will not be receiving income from the foreclosure. Keep in mind that until the foreclosure is complete, the real estate is sold at an auction, or the title has been transferred to another party, the real estate is still technically considered the tenant’s.
The real estate may have gone through a short sale. In this case, it is typically not considered an asset as, most often, the owner will not be receiving income from this asset. However, if there is a difference in the sale that is in favor of the resident, that difference is counted as an asset. Additionally, it must be verified by a third party if it is a HOME project and if it exceeds $5,000 for LIHTC.
One final note is in regard to reverse mortgages. These are similar to a loan since the income from this must be paid back. Keep in mind that the real estate would still need to be treated as an asset and calculated accordingly. The calculation for the cash value of this done by taking the market value less the principal balance due on the reverse mortgage.
There are many types of scenarios when dealing with real estate, so please ensure you are consulting with your HFA or State Agency if you come across one of these examples.