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3) A capital expenditure. This is an expense for an addition to or increase in the value of the property and is subject to depreciation for tax purposes (i.e. principal portion of mortgage payment, additions to existing structure, remodeling).

4) The property depreciation amount claimed as a federal income tax deduction.

5) Replacement of an existing feature of the property which could have been repaired (e.g., furnace could be repaired but is replaced with new heating system).

6) Replacement of an existing feature of the property which could not be repaired with one that is not of comparable value (e.g., replacement of shingle roof with brick tile roof) which results in improvement and increases the value of the property.

3) Calculate adjusted gross annual rental income by subtracting allowable annual operational expenses from gross annual rental income.

4) Determine countable adjusted gross monthly rental income by dividing by 12 months.

EXAMPLE monthly gross rent $ 450 property taxes per year $ 350 insurance per year $ 300 other expenses per month $ 100 $450 X 12 = $5,400 $ 5,400 - $ 350 Taxes - $ 300 Insurance $100 X 12 = $1,220 - $ 1,220 other expenses = $ 3,550 $3,550 divided by 12 = $ 295.83 adjusted gross countable monthly rental income DO NOT ROUND, use entire amount in monthly budget.

NOTE: If an unexpected expense is reported, then subtract the expense from the countable adjusted gross monthly rental income.

c. Explain to the a/b that net countable monthly rental income amount received must be included as countable income for PLA. If a/b is institutionalized, then income is countable in determining PML. Also