Page 34

5. Non-Home site Property Which Meets Current Use Requirements Property that meets the home site exclusions in VII.A.1., 2., 3. does not have to meet the current use requirements. If “currently in use” for certain purposes, property may be excluded. a. If the non-business property produces a net annual income of at least 6% of its equity, as calculated by the 6% test in Item IX., exclude up to $6,000 in its equity. The 6% income requirement may be waived if the lower return is for reasons beyond the a/b’s control. (See IX.H.2.) Non-business property cannot be made income-producing for a period of time which has already passed if there was no prior arrangement. Real property that is excluded as the home (See VII.A.1., 2., and 3.) or that is otherwise excluded, may produce income. However, it is not subject to the 6% income test. b. Property Used in Trade or Business (e.g. a family farm) The property is excluded if actively involved in a trade or business regardless of value and amount of profit. However, it must be in current use as trade or business property or, if not in use for reasons beyond the individual’s control, there must be a reasonable expectation that the required use will resume (Refer to VII.A.5.d.). The property maybe excluded if used in trade or business when: (1) Active involvement exists—the a/b or financially responsible person must be actively involved in the business operation on a day to day basis. The information reported on the Schedule E, Supplemental Income and Loss, should be checked to determine whether the individual is actively engaged in the business. If the income is listed as Non-Passive Income (27k), the individual is actively engaged in the business. If it is listed as Passive Income (27h), he is not actively engaged in the business. (2) Consider the following when determining if a trade or business exists in newly formed LLC’s and/or questionable situations: • Does the IRS regard it as a trade or business? • Does the individual have documents to support the claim of trade or business? Examples include tax reports/returns SS-4. • Does the individual have business licenses, permits, registration? • Is the individual a member of a business or trade association? 34