Medicaid Policy
Medicaid Policy
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Certain income-producing assets may be fully or partially excluded. The individual must currently be using the assets to be able to exclude all or part of the value according to policy under 1. or 2. below. Currently in use means the assets are being used to produce income at the time of application. If they are not in current use, there must be a reasonable expectation that the required use will resume within 12 months of when the assets were last used to produce income. Allow up to one 12-month extension to this time limit if non-use is because the individual has a disabling condition and expects to use the income-producing use by the end of the extended time. If the person does not expect to resume use of the property to produce income according the following policy, count the property as an available resource for the month after last use.
Assets of Self-Employment
If the individual is actively engaged in self-employment, the business assets are exempt. This includes the assets of a sole proprietorship and a general partnership. Actively engaged in self-employment means the individual contributes significant time and talents in the daily activities of a business owned wholly by the individual or in a partnership with others, with the intent to produce a profit. Refer to Section 419-3 to decide if the person is self-employed.
Self-employment assets include: Financial accounts, property, vehicles, water shares, inventory, equipment, etc. The applicant/recipient must prove and verify that the asset is for self-employment.
To determine how much money held in financial accounts is needed for self-employment, decide how much cash the business needs for the usual operating costs in a year. Exclude up to 3 times the amount required for usual operating costs.
Assets Required for Employment
Exempt any personal property used by an employee for work. For example, do not count tools owned by the individual that are used to perform his or her job. The property is exempt while the individual is employed and during temporary periods of unemployment if the individual intends to return to his usual job. Follow the policy about current use described above.
Rental Property and Livestock
If the rental property or livestock is not an asset of active self-employment, exempt up to $6,000 of the equity of rental property or livestock if the net annual rate of return on the asset is at least 6% of the excluded equity. A net annual return is the amount of income produced after subtracting expenses necessary to generate the income. [NOTE: Most rental property is not an asset of self-employment. To be an asset of self-employment, the individual must be involved in the business of renting properties such as a real estate dealer who rents properties while trying to sell them. See 415-4]
When the individual owns more than one piece of income-producing property, the 6% rate of return applies individually to each piece of income-producing property. However, the $6000 exclusion of equity applies to the combined total equity value of all the properties meeting the 6% return requirement.
If the 6% net annual return is met, exclude up to $6,000 of the equity and count any equity value in excess of $6,000. If the 6% net annual return is not met, count the entire equity amount. If one piece of property meets the 6% return rate, and another piece of property does not meet the 6% return rate, allow the $6,000 equity exclusion only for the piece of property meeting the 6% test. Count the full equity value of the piece of property that does not meet the 6% test.
There is one exception to the 6% rate of return requirement:
If property produces less than the 6% return, the exclusion can still apply only if:
1) The lower return is for reasons beyond the individual's control; and
2) There is a reasonable expectation that the property will again produce a 6% return.
If the earning decline was for reasons beyond the individual's control, allow up to 24 months for the property to resume providing a 6% return. The 24-month count begins the first day of the tax year following the one when the property stopped earning a 6% rate of return.
Other Income-Producing Property
Income-producing property that is not needed for self-employment or employment is not exempt. This includes bank accounts producing interest and stocks or bonds producing dividends.
If the income-producing property is also the individual’s residence, such as a duplex where the individual lives in one half and rents the other half, follow the policy in section 521-1 for excluding the property.