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2. Capital Gains. Business income from selling securities and other property is counted. Personal capital gains and ordinary gains or losses are counted as unearned income. See SECTION 16.5 OTHER INCOME for more information. 3. Royalties. Royalty income is unearned income received for granting the use of property owned or controlled. Examples are patents, copyrighted materials, or a natural resource. The right to income is often expressed as a percentage of receipts from using the property or as an amount per unit produced. 4. Rental. Rental income is rent received from properties owned or controlled. Rental income is either earned or unearned. It is earned only if the owner actively manages the property on an average of 20 or more hours per week. It is unearned when the owner reports it to the IRS as other than self-employment income. Use "net" rental income in the eligibility determination. "Net" rental income means gross rental receipts minus business expenses. Rental Income Not Reported as Self-Employment Income When a BadgerCare Plus group member does not report rental income as self-employment income, the net rental income is counted as unearned income. Determine net rental income as follows: A. When the owner is not an occupant, net rental income is the rent payment(s) received minus the interest portion of the mortgage payment and other verifiable operational costs. • Operational costs include ordinary and necessary expenses such as insurance, taxes, advertising for tenants, and repairs. Repairs include such expenses as repainting, fixing gutters or floors, plastering, and replacing broken windows. • Capital expenditures are not deductible from gross rent. A capital expenditure is an expense for an addition or increase in the value of the property. It would include improvements such as finishing a basement; adding a room; putting up a fence; putting in new plumbing, wiring, or cabinets; or paving a driveway. • If an institutionalized person has excess operational costs above the monthly rental income, carry the excess costs over into later months until they are offset completely by rental income. The carryover should only be done until the end of the year in which the expenses were incurred. • When a life estate holder moves off the property and the property is rented, count the net rental income the holder is entitled to receive. Net rental income is the gross rental income minus taxes, insurance, and other operational costs. The operational costs are the same as the costs the holder was liable for when living on the property. B. When the owner is an occupant (of a duplex, triplex, etc.) and lives in one of the units, determine net rental income as follows: 1. Add together the annual interest portion of the mortgage payment and other annual verifiable operational costs common to the entire operation to get the total annual expenses. a. Operational costs include ordinary and necessary expenses such as insurance, taxes, advertising for tenants, and repairs. Repairs include such expenses as repainting, fixing gutters or floors, plastering, and replacing broken windows. b. Capital expenditures are not deductible from gross rent. A capital expenditure is an expense for an addition or increase in the value of the property. It would include improvements such as finishing a basement; adding a room; putting up a fence; putting in new plumbing, wiring, or cabinets; or paving a driveway.