The HECM borrower's cash flow/residual income analysis must take into account Federal taxes. If no Federal taxes are paid on some or all of a borrower’s income, it will be reflected in the expense analysis for residual income.
Non-taxable income therefore, may not be “grossed up.”
For additional information see Mortgagee Letter 2016-10 and the attached revised HECM Financial Assessment and Property Charge Guide, Section 3.6 at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee