Citizens of the United States and resident aliens, except those with gross incomes below a certain level, are required to file an income tax return with the Internal Revenue Service (IRS) each year. This income tax return is officially referred to as Form 1040.
IRS Form 1040 requires reporting of certain kinds of income, which are then added together to constitute what is referred to as "gross income." From the gross income figure, certain deductions are then taken to arrive at an "adjusted gross income." This is the figure used to determine an applicant's eligibility for participation in HOME programs.
The IRS Form 1040 definition of "adjusted gross income" referred to in the HOME regulations means the figure arrived at by using the IRS form commonly referred to as the "long form."
The IRS definition of "adjusted gross income" set forth in IRS Form 1040EZ, may not be used to determine the eligibility of applicants to HOME programs.
The term "adjusted gross income" that is used when referring to the IRS Form 1040 definition of annual income should not be confused with "adjusted income," which is calculated in accordance with the regulations at 24 CFR 5.611 for use in determining subsidy and payment levels.
Types of Income to Count
PJs must determine if a household applying for assistance has any of the types of income included in the IRS Form 1040 definition of income and what amount, if any, must be included when calculating gross income.
Click on the following key words to view, print, and/or download an easy-to-read table showing the current inclusions and exclusions (below) in the IRS Form 1040 calculation of "adjusted gross income."
Once the gross income figure is obtained, applicable deductions are then subtracted to arrive at the household's "adjusted gross income." To determine if a household may take any of the deductions and in what amount, the PJ should follow the instruction provided with IRS Form 1040. These deductions may include:
- IRA deductions,
- Medical savings account deductions,
- Moving expenses,
- One-half of self-employment taxes,
- Self-employed health insurance deductions,
- KEOGH and self-employed SEP and SIMPLE plans,
- Penalties on early withdrawal of savings, and
- Paid alimony.
1040 Long Form Income
This lists the inclusions and exclusions of IRS Form 1040 income.
- Wages, salaries, tips, etc.
- Taxable interest.
- Taxable refunds, credits or offsets of State and local income taxes. There are some exceptions - refer to Form 1040 instructions.
- Alimony (or separate maintenance payments) received.
- Business income (or loss).
- Capital gain (or loss).
- Other gains (or losses) (i.e., assets used in a trade or business that were exchanged or sold).
- Taxable amount of individual retirement account (IRA) distributions. (Includes simplified employee pension [SEP] and savings incentive match plan for employees [SIMPLE] IRA.)
- Taxable amount of pension and annuity payments.
- Rental real estate, royalties, partnerships, S corporations, trusts, etc.
- Farm income (or loss).
- Unemployment compensation payments.
- Taxable amount of Social Security benefits.
- Other income. (Includes: prizes and awards; gambling, lottery or raffle winnings; jury duty fees; Alaska Permanent fund dividends; reimbursements for amounts deducted in previous years; income from the rental of property if not in the business of renting such property; and income from an activity not engaged in for profit).
- Child support.
- Money or property that was inherited, willed or given as a gift.
- Life insurance proceeds received as a result of someone's death
Using Previously Filed 1040
If a household has submitted an IRS Form 1040 to the IRS for income tax purposes and that form is less than six months old, a PJ may use the form to determine the eligibility of the applicant for HOME programs. However, using the actual tax return has the following implications:
- PJs must ensure that IRS Form 4506 "Request for Copy of Tax Form" is completed and signed.
- PJs are required to determine if any of the circumstances as reported on the form have changed or will change in the upcoming 12 months and to make such adjustments.
For example, if the applicant received a raise at his/her job since the submission of the tax return, the current income figure should be used to determine eligibility.
- PJs must ensure that everyone in the household is represented through the use of the tax return.
For example, if a husband and wife file a joint return, but their adult son that resides with them files a separate return, the tax return of the husband and wife would not be sufficient for determining income.
Treatment of Assets
Income from certain assets must be carefully considered when calculating income under the IRS Form 1040 definition of adjusted gross income.
The current list of IRS Form 1040 inclusions and exclusions includes the following types of income from assets in the income calculation:
- Taxable interest,
- Prizes, awards, and
- Gambling, lottery, or raffle winnings.
The primary difference between the Part 5 and the IRS Form 1040 definitions of annual income is in the treatment of assets. The calculation of IRS Form 1040 annual income does not require the asset calculations necessary when using the Part 5 definition.
In addition, some types of assets are not included in the IRS Form 1040 calculation. Examples include:
- Life insurance proceeds, and
- Inherited money or property