The IRS has provided guidance on the federal tax treatment and information reporting requirements for payments made to, or on behalf of, financially distressed individual homeowners from the Homeowner Assistance Fund (HAF).
Homeowner Assistance Fund (HAF). The HAF was established under section 3206 of the American Rescue Plan Act of 2021 (ARP Act, ARPA; PL 117-2). HAF was enacted to mitigate financial hardships associated with the COVID-19 pandemic by providing funds to “eligible entities” to pay certain expenses to prevent homeowner mortgage delinquencies; defaults; foreclosures; loss of utilities or home energy services; and displacements of homeowners experiencing financial hardship after January 21, 2020.
Eligible entities include any state of the U.S., the District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
HAF guidance. Rev Proc 2021-47 provides that a payment made with HAF funds by an eligible entity to, or for the benefit of, a homeowner is a qualified disaster relief payment under Code Sec. 139(b)(4). Thus, such payments are not included in the homeowner’s gross income.
This revenue procedure also provides an optional safe harbor method homeowners may use compute their itemized deductions for mortgage interest and real property taxes when the homeowner has received, or benefited from, a HAF payment during the tax year. This safe harbor is necessary because a HAF payment may be used to pay a portion of a homeowner’s mortgage interest and/or real property taxes while the homeowner also paid a portion of those expenses with non-HAF funds.
Rev Proc 2021-47 also provides guidance to States, and mortgage lenders and servicers regarding information reporting requirements relating to certain HAF payments.
Effective date. Rev Proc 2021-47 is effective on November 8, 2021, and applies to qualified expenses paid after January 21, 2020.
To continue your research on governmental disaster-related grants to individuals and families, see FTC 2d/FIN ¶ J-1496.
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