S Property Essential to Self-Support

Revised 08/14/2020

Policy

Certain property that generates income and can be considered “essential to self-support” is excluded when it is currently in use.

Exception:

The property may not be in use for reasons beyond the customer's control. In this situation it may still be excluded when:

It has been in use before: and
There is a reasonable expectation that it will be in use again within 12 months of the last use.

There are three kinds of property that may be partly or fully excluded as essential to self-support:

Business property used in a trade or for employment;
Non-business property that produces at least a 6% rate of return; and
Property that produces goods or services for the customer’s needs.

This policy is applied regardless of whether the trade or business activity is legal or illegal.

NOTE When home property is used in a trade or business, see Home Property policy in MA705K.

1) Business property used in a trade or for employment

The full value of property currently being used for a job or for self-employment is excluded. There are three main types of property covered by this policy:

Trade or business property;
Personal property used by a customer as an employee for work; and
Property that represents governmental authority to engage in an income producing activity (for example a vendor’s license).

See Property Essential to Self-Support for an example.

2) Non-business property that produces a 6% rate of return

Up to $6,000 of the equity value of non-business property is excluded if the property produces at least a 6% rate of return. The rate of return is calculated by dividing the net annual income from the property by the property’s equity value (see Rate of Return for an example).

Exception:

A property’s rate of return for the current year may be lower than 6% for reasons beyond the customer's control. In this situation it may still be excluded when:

The property has produced at least a 6% rate of return in one of the last two years; and
There is a reasonable expectation that the property will again produce at least a 6% rate of return within 24 months of the last year it produced a 6% rate of return.

See Determining the Nonbusiness Property Exclusion when the Rate of Return is Less Than Six Percent.

NOTE If there is more than one property, the rate of return requirement applies to each property separately. For example, a customer owns two small rental spaces valued at $2,500 each, each one would have to produce a 6% rate of return to be excluded.

3) Property that produces goods or services for the customer’s needs

Up to $6,000 of the equity value of property used to produce goods or services for the daily living needs of the customer or the customer’s spouse is excluded.

Definitions

Term	Definition
Business Property	Property used in a trade or business including: Property and items necessary to running a business. Examples include warehouse and storage buildings, fleet vehicles, manufacturing or office equipment, or liquid resources used as part of the business. Items like tools, safety equipment, uniforms, etc. that the customer uses as an employee; Licenses to engage in an income producing activity that have a market value (for example, a license to sell liquor).
Non-business income-producing property	Land or non-liquid property that provides rental or other income but is not used as a part of a trade or business. Examples include: Buildings producing rental income; Land producing rent, mortgages, or land use fees like, timber royalties, mineral rights, or grazing fees.
Property used to produce goods or services for the customer’s household needs	Property used to produce food items or for activities that produce food items. Examples, include: Property used to grow produce or livestock solely for the customer’s home consumption (for example, milk cows, chickens for meat or eggs, a garden plot for vegetables). Property used in activities needed to produce food solely for the customer’s home consumption (for example, a garden tractor or a boat used for subsistence fishing). NOTE This does not include any vehicle that qualifies as an automobile (used primarily for personal transportation).

Proof

Specific proof needed for property essential to self-support depends on the type of property. The following table lists the proof needed for each property type:

If the property is…	The proof needed is…
Business Property	For property used in the customer’s own trade or business, a written statement with the following information: A description of the trade or business; A description of the resources used in the trade or business; and The number of years the trade or business has been operating. If the business has operated less than a year, or the validity of the business is questionable, see Determining whether a valid trade or business exists. For property used as an employee, a written statement with the following information: The name and contact information for the employer; A description of the property used on the job; and A description of the job duties where the property is used. For property that represents governmental authority to engage in an income producing activity, a written statement with the following information: The type of license, permit, or other property; The name of the issuing agency; Whether the license, permit, or other governmental authority is required for the income-producing activity; and How the license, permit, or other governmental authority is being used. NOTE For any business property essential to self-support, contracts, invoices, and paychecks may be used to support the customer’s statement that the property is currently in use for self-support.
Non-business income-producing property	The property’s equity value - See the specific property type in MA705 for the proof needed. The property’s annual net income - See the specific income type in MA606 for the proof needed. NOTE For property with a rate of return below 6%, the customer must also provide written statement explaining the earnings decline, and proof of the property’s earnings for the last two tax years.
Used to produce goods or services for the customer’s household needs	The property’s equity value - See the specific property type in MA705 for the proof needed. The customer must also provide a written statement with the following information: A description of the property; How the property is used; and That the property excluded as producing food for home consumption will be used for that purpose, and the food produced is for personal use and not for sale.
Not currently in use, but expected to be in use within 12 months	The customer must provide a written statement that includes all of the following: The date the property was last used; The reason the property is not currently in use; and The date the customer expects it to be back in use.

Legal Authority

Program

Legal Authority

ALTCS

42 USC 1382b(a)(3)

20 CFR 416.1220

20 CFR 416.1222

20 CFR 416.1224