(a) Repayment income. Repayment income is the annual amount of income from all sources that are expected to be received by those household members who are parties to the promissory note, except for any student financial aid received by these household members for tuition, fees, books, equipment, materials, and transportation. Repayment income is used to determine the household's ability to repay a loan.
(b) Annual income. Annual income is the income of all household members from all sources except those listed in (b)(1) through (b)(12) of this section:
(1) Earned income of persons under the age of 18 unless they are a borrower or a spouse of a member of the household;
(2) Payments received for the care of foster children or foster adults;
(3) Amounts granted for or in reimbursement of the cost of medical expenses;
(4) Earnings of each full-time student 18 years of age or older, except the head of household or spouse, that are in excess of any amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended;
(5) Temporary, nonrecurring, or sporadic income (including gifts);
(6) Lump sum additions to family assets such as inheritances; capital gains; insurance payments under health, accident, or worker's compensation policies; settlements for personal or property losses; and deferred periodic payments of supplemental security income and Social Security benefits received in a lump sum;
(7) Any earned income tax credit;
(8) Adoption assistance in excess of any amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended;
(9) Amounts received by the family in the form of refunds or rebates under State or local law for property taxes paid on the dwelling;
(10) Amounts paid by a State agency to a family with a developmentally disabled family member living at home to offset the cost of services and equipment needed to keep the developmentally disabled family member at home;
(11) The full amount of any student financial aid; and
(12) Any other revenue exempted by a Federal statute; a list of which is available from any Rural Development office.
(c) Adjusted income. Adjusted income is used to determine program eligibility for sections 502 and 504 and the amount of payment subsidy for which the household qualifies under section 502. Adjusted income is annual income as defined in paragraph (b) of this section less any of the following deductions for which the household is eligible.
(1) For each household member, except the head of household or spouse, who is under 18 years of age, 18 years of age or older with a disability, or a full-time student, the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.
(2) A deduction of reasonable expenses for the care of minor 12 years of age or under that:
(i) Enable a family member to work or to further a member's education;
(ii) Are not reimbursed or paid by another source; and
(iii) In the case of expenses to enable a family member to work do not exceed the amount of income earned by the family member enabled to work.
(3) Expenses related to the care of household members with disabilities that:
(i) Enable a family member to work;
(ii) Are not reimbursed from insurance or another source; and
(iii) Are in excess of three percent of the household's annual income.
(4) For any elderly family, a deduction in the amount determined pursuant to section 501(b)(5) of the Housing Act of 1949, as amended.
(5) For elderly households only, a deduction for household medical expenses that are not reimbursed from insurance or another source and which in combination with any expenses related to the care of household members with disabilities described in paragraph (c)(3) of this section, are in excess of three percent of the household's annual income.
(d) Net family assets. Income from net family assets must be included in the calculation of annual income. Net family assets also are considered in determining whether a down payment is required.
(1) Net family assets include, but are not limited to:
(i) Equity in real property or other capital investments, other than the dwelling or site;
(ii) Cash on hand and funds in savings or checking accounts;
(iii) Amounts in trust accounts that are available to the household;
(iv) Stocks, bonds, and other forms of capital investments that are accessible without retiring or terminating employment;
(v) Lump sum receipts such as lottery winnings, capital gains, inheritances; and
(vi) Personal property held as an investment.
(2) Net family assets do not include:
(i) Interest in American Indian restricted land;
(ii) Cash on hand which will be used to reduce the amount of the loan;
(iii) The value of necessary items of personal property;
(iv) Assets that are part of the business, trade, or farming operation of any member of the household who is actively engaged in such operation;
(v) Amounts in voluntary retirement plans such as individual retirement accounts (IRAs), 401(k) plans, and Keogh accounts (except at the time interest assistance is initially granted);
(vi) The value of an irrevocable trust fund or any other trust over which no member of the household has control;
(vii) Cash value of life insurance policies;
(viii) The value of tax advantaged college savings plans (529 plan, Coverdell Education Savings Account, etc.);
(ix) The value of tax advantaged health or medical savings or spending accounts; and
(x) Other amounts deemed by the Agency not to constitute net family assets.
[61 FR 59779, Nov. 22, 1996, as amended at 67 FR 78329, Dec. 24, 2002; 84 FR 29038, June 21, 2019]