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15.4.23 Rental Income When a Medicaid group member reports rental income to the IRS as self-employment income, see SECTION 15.6.4 SELF-EMPLOYED INCOME SOURCES. If he or she does not report it as self-employment income, the net rental income is counted as unearned income. Determine net rental income as follows 1. When the owner is not an occupant, net rental income is the total rent payment(s) received minus the interest portion of the mortgage payment(s) and other verifiable operational costs. 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. But do the carryover only until the end of the year in which the expenses were incurred.

When a life estate (see SECTION 16.8.1.6 LIFE ESTATE) holder moves off the property and the property is rented, count the net rental income the holder is entitled to receive. The operational costs are the same as the costs the holder was liable for when living on the property. 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 such improvements as finishing a basement, adding a room, putting up a fence, putting in new plumbing, wiring, or cabinets, or paving a driveway. 2. When the owner is an occupant (of a duplex, triplex, etc.) and lives in one of the units, determine net rental income as follows: a. 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. i. Operational costs include ordinary and necessary expenses, such as insurance, taxes, advertising for tenants, and repairs. Repairs include such expenses, such as repainting, fixing gutters or floors, plastering, and replacing broken windows. ii. 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 such improvements as finishing a basement, adding a room, putting up a fence, putting in new plumbing, wiring, or cabinets, or paving a driveway. b. Divide the result in step 1 (the total annual expenses) by the total number of units to get the proportionate annual share of expenses. c. Multiply the amount in step 2 (the proportionate annual share of expenses) by the number of rental units (rental units means the total number of units minus the unit the owner lives in) to get the member’s total annual expenses. d. Subtract the result in step 3 (the member’s total annual expenses) from the total annual rental income to get the member’s net annual rental income. e. Divide the result of step 4 (the member’s net annual rental income) by 12 to get the member’s net monthly rental income. Budget this amount.