AAA Rental Income
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AAA Rental Income

 

Policy

1) How Rental Income Is Treated

Rental income minus allowed expenses is counted for all programs.

NOTE     For Non-MAGI coverage groups, rental income is categorized as earned or unearned income as follows:

If...

Then treatment is...

The person is in the business of renting properties

Counted as earned income (self-employment).

The person is not in the business of renting properties

Counted as unearned income.

 

2) Expenses

What expenses may be deducted depends on the program:

If the program is...

Then these expenses are deducted before counting income...

  • ALTCS

  • SSI MAO

  • MSP

  • FTW

  • Property taxes;

  • Interest and escrow payments on a mortgage (payments on the principle of a mortgage is not an allowed expense);

  • Real estate insurance;

  • Repairs, such as repairing a roof or fence;

NOTE     Capital investments like replacing a roof or installing a fence is not an allowable expense.

  • Advertising for tenants;

  • Landscaping or lawn maintenance;

  • Snow removal;

  • Utilities; and

  • Homeowner’s insurance.

NOTE     Expenses are deducted when paid and not when incurred.

  • Adult

  • Caretaker Relative

  • Pregnant Woman

  • Child

  • KidsCare

Real Estate Rental

  • Advertising;

  • Ordinary and necessary auto and travel expenses related to rental activities;

  • Cleaning and maintenance;

  • Commissions;

  • Insurance;

  • Legal and other professional fees;

  • Mortgage and other interest related to rental income;

  • Repairs;

  • Supplies;

  • Taxes;

  • Utilities;

  • Depreciation expense or depletion; and

  • Other ordinary and necessary expenses related to rental of real estate.

NOTE  For people who are in the business of renting personal property such as equipment or vehicles, see self-employment MS 606.CCC.

 

3) Prorating Expenses

If the person rents out only a part of a property, expenses must be prorated to determine the amount that is for the rented part of the property. The following are examples of how expenses are prorated.

Scenario

Example

Multiple Residences

The customer owns a four-unit apartment building. She lives in one unit and rents the other three. Three quarters of the allowable expense are deducted from the gross rental income.

Rooms for Rent

The customer rents one bedroom out of her six-bedroom house. One-sixth of the allowable expenses are deducted from the gross rental income.

Acreage

The customer rents one acre of the five acres of land she owns. One-fifth of the allowable expenses may be deducted from the gross rental income.

 

Definitions

Term

Definition

Net Rental Income

Gross rent less the ordinary and necessary expense paid in the same taxable year.

Ordinary and Necessary Expenses

Expenses necessary for the production or collection of rental income. In general, these expenses include:

  • Interest on debts;

  • State and local taxes on real and personal property and on motor fuel;

  • General sales taxes; and

  • Expenses of managing or maintaining property.

 

Proof

Income is first obtained through the Federal and State Data Services Hubs. If needed, other proof includes:

 

Legal Authority

This requirement applies to the following programs:

Program

Legal Authorities

ALTCS

SSI-MAO

Medicare Savings Program

Freedom to Work

42 USC 1382a(a)(1)(B)

42 USC 1382a(a)(2)(F)

20 CFR 416.1110(b) and 1121(d)

AAC R9-22-1909

Adult

Caretaker Relative

Pregnant Woman

Child

KidsCare

42 CFR 435.603

42 CFR 457.10, 300, 301 and 315