Medicaid Policy
Medicaid Policy
Previous Policy (415-4 was previously found in 403-5 until November 1, 2021)
A. Definition for all Programs
Rental income may be received for the use of land, buildings, machinery, or equipment. Rental income can be earned or unearned. If the income is earned, follow the rules for self-employment in Sec. 419-2.
1. A federal tax return is usually the best verification of earned income and expenses.
2. If the individual has not filed a tax return or the tax return is not reflective of the current self-employment, the individual may self-declare his income and expenses with a ledger or other bookkeeping system. Only request receipts if the individual has no other record keeping system for expenses.
3. The amount an individual receives for renting a room is always considered income, rather than a cash contribution. Follow the following guidelines to determine if it is earned or unearned.
B. MAGI-Based Programs
Rental income is countable income for the MAGI based programs. It can be earned or unearned.
1. Rental income is earned income if the individual is involved in the management of the property as a real estate professional. Rental income in most cases is unearned.
2. When a household rents out a room to supplement family income, the income counts as unearned income. Allow an equivalent percentage of the amount paid in utilities and taxes as a deduction, as the space being rented. The income is unearned if both of the following are true:
a. The individual is not involved in the managing the property, and
b. The rental property is not part of a self-employment business.
The individual needs to report the net rental income (after expenses) that is expected during the year. For a individual who will file a tax return, this will be the amount the individual will enter on Schedule 1 (Form 1040).
C. ABD and Long-Term Care
1. Rental income is usually unearned income unless it is part of a self-employment business. The income is unearned if the services provided by the owner:
a. Do not affect the amount that is charged for rent,
b. Only provide, protect, or add to the investment.
c. It is earned income only if:
d. It is an integral part of another self-employment business or
e. The individual also provides facilities or services that are not usually provided in connection with the rental of property. These extra facilities or services must be more than is necessary to maintain, protect, or improve the property and must affect the amount of rent charged.
2. Indicators that rental income is earned: (If it affects rent)
a. Furnishing linens and towels,
b. Preparing and serving meals,
c. Cleaning clothes,
d. Providing services connected with operation of a playground, recreation hall, swimming pool, tennis court, or golf course.
3. Deposits. Rental deposits are not income until they are used to pay rent. If the rental income is unearned, the deposit is unearned.
4. Deductions for Rental Income. Deduct the cost of producing the income. Allow costs share of rent such as property taxes or insurance, interest payments on the mortgage (but not payments on the principal), incidental repairs, advertising, landscaping, and utilities.
5. Do not deduct the cost of an addition or increase in value of rental property. Do not deduct depreciation. You may contact IRS to determine if other expenses are allowable deductions.
· Do not allow deductions for increases in value of the property but do allow deductions to maintain the value.
For example: allow a deduction to repair a roof but not to replace a roof. Allow a deduction to fix a leaking faucet but not to install a new plumbing system.
D. Family Medically Needy
Income from rental property is unearned if the individual does not manage the property. Use these rules only if the rental income is unearned.
If the individual manages the property, the rental income is earned. (It does not matter how much time the individual spends managing the property.) For earned income from rental property, follow the rules for self-employment income in Sec. 419-2.
If the rent being charged is below the average rent for similar accommodations in the community, allow only a $30 deduction.
If the individual is charging an amount that is consistent with community standards, allow $30 or actual expenses proven by the individual, whichever is greater.
Only the following actual expenses can be allowed if the rental income is unearned:
1. Taxes and attorney fees needed to make the rental income available.
2. Upkeep and repair costs necessary to maintain the current value of the property. This includes utility costs.
3. The interest on a loan or second mortgage taken out for upkeep or repairs.
4. The value of a monthly one-person food stamp allotment for meals provided to a boarder.