Tax Refunds: Do we count it as income?

Sharon Trischler

Feb 6

3 min read

It’s that time of year again—residents and applicants across the country are preparing to file their 2025 tax returns, and many will receive a tax refund. For affordable housing compliance purposes, it’s important to understand how these refunds are treated when determining program eligibility and benefits.

Under 26 U.S.C. § 6409, added in 2010, any tax refund or advance payment of a refundable credit is not counted as income and is excluded as a resource for 12 months after receipt. This exclusion applies when determining eligibility or benefit amounts for any federal, state, or local program funded in whole or in part with federal dollars. For Multifamily Housing programs, tax refunds were already excluded under 24 CFR 5.609(b)(24)(iv). The Housing Opportunity Through Modernization Act (HOTMA) further reinforces this treatment by adding tax refunds to the list of specifically excluded income.

So what does this mean for residents, applicants, and management agencies? Because tax refunds must be excluded from income and assets, it’s essential that property staff take proactive steps to identify them. Management should be asking residents and applicants whether they have received a tax refund within the past 12 months. If a household’s total assets are below the applicable inflation-adjusted asset threshold, no additional action is required.

However, if a household’s Net Assets exceed the inflation-adjusted threshold—$52,787 for 2026 — the tax refund must be verified and excluded from net assets. Verification is completed by obtaining a copy of the household’s tax return that clearly shows the total refund amount. As always, the tax return must be complete, including all pages and attachments, and fully legible.

Why is this so important and why does it matter? This matters because our Net Family Assets determines whether we will impute asset income for any assets in which the actual income could not be determined.

Understanding and properly documenting tax refunds ensures accurate certifications and continued compliance. The next step is knowing how this exclusion is reflected during the certification process, so lets look at a couple examples together!

Example 1: Tax refund results in the net assets dropping below $0.

Fred Flinstone is completing his annual recertification effective 6/1/2026. He has reported on his annual recertification questionnaire that he received a $1,200 refund when he filed his 2025 tax return. His total net assets does not exceed the inflationary adjustment amount and is not required to be verified.

Non-Necessary Personal Property	$650.00
Real Property	0
Tax Refund	$1200
Total Net Assets	$0
Inflationary Adjustment amount	$52,787

His total assets, after receiving the necessary verifications totaled $650.00. Since, we are now deducting the tax returns from his total assets, the net assets would be $0. This is because subtracting $1,200.00 from $650.00 would result in the net assets being negative. So we will automatically make the net assets from this household $0. No verification of the refund is required.

Example 2: Tax refund results in the net assets dropping below $52,787.

Fred Flinstone is completing his annual recertification effective 6/1/2026. He has reported on his annual recertification questionnaire that he received a $1,200 refund when he filed his 2025 tax return. We have verified all assets and determined that he does not own any real estate, but has NNPP that totals $53,500.

Non-Necessary Personal Property (+)	$53,500
Real Property (+)	0
Tax Refund (-)	$1200
Total Net Assets	$52,300
Inflationary Adjustment amount	$52,787

Since our total Net Assets are below $52,787, no verification of the refund is required.

Example 3: Tax refund results in the net assets exceeding $52,787.

Fred Flinstone is completing his annual recertification effective 6/1/2026. He has reported on his annual recertification questionnaire that he received a $1,200 refund when he filed his 2025 tax return. We have verified all assets and determined that he does not own any real estate, but has NNPP that totals $60,000.