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MISSISSIPPI DIVISION OF MEDICAID Eligibility Policy and Procedures Manual CHAPTER 200A – Income: ABD Categories Page |71 Effective Month: July 2025 Deductible Expenses Ordinary and necessary expenses are those 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 tax. • Expenses of managing or maintaining the property. Specific examples of deductible expenses include: • Interest and escrow portions of a mortgage payment at the point the payment is made to the mortgage holder. • Real estate insurance. • Repairs, i.e., minor corrections to the existing structure. • Property taxes. • Lawn care. • Snow removal. • Advertising for tenants. • Utilities. Nondeductible Expenses The following are not allowable expenses: • Principle portion of a mortgage payment. • Capital expenditures, i.e., an expense for an addition or increase in value of the property which is subject to depreciation for tax purposes (For example, a new roof or replacement of the central heating and air unit.) • Depreciation or depletion of property. NOTE: If uncertain about whether an expense is allowable, e.g., whether it is an incidental repair or a capital expenditure, refer to IRS Publication 527 or contact the local Internal Revenue Service (IRS). Treatment of Rental Income • Expenses are deducted when paid, not when incurred. • Net rental income is counted as unearned income unless it is earned income from self-employment (such as someone in the business of renting properties).