Attachment.4

December 28,1994

Jay Klein
National Home of Your Own Alliance
Institute on Disability
University of New Hampshire
Heidelberg Harris Building
125 Technology Drive
Durham, NH 03824

Dear Jay,

This letter has taken a little longer than I expected due to a number of events.

From my review of the Supplemental Security Income (SSI) regulations it would appear that the payment of Medicaid waiver funds to pay for food and /or shelter expenses of an un-related live-in caregiver providing services to an SSI recipient in the SSI recipient's household would not be considered income chargeable or accountable to the SSI recipient unless the payment exceeded the true cost of the caregiver's food or shelter. Attached for example is a copy from our Program Operations Manual on rental income. The focus of the instruction is on computing the profit or payment received in excess of the expenses. It is only the profit or the excess that is considered income to the SSI recipient as it is only this excess that the SSI recipient can use for their food, clothing or shelter needs.

As you know this is my opinion as someone who administers the SSI program based upon the information we discussed. To obtain a definitive policy decision , the regulation would have to be reviewed by Social Security Programs Branch in Baltimore, Maryland.

Sincerely,

Robert J. White

Assistant District Manager

00830.505 RENTAL INCOME

CITATIONS Social Security Act as amended, Section 1612(a)(2)9F0; 20 CFR 416.1121(d)

A. POLICY

1. Definitions a. Rent is a payment which an individual receives for the use of real or personal property, such as land, housing or machinery b. Net rental income is gross rent less the ordinary and necessary expenses paid in the same taxable year. c. 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
expenses of managing or maintaining property.
general sales taxes; and
see A.11. below for a more specific list.

2. Depreciation Non Deductible Depreciation or depletion of property is not a deductible expense.

3. When to Deduct Expenses We deduct expenses when paid, not when incurred

4. Earned or Unearned Income Net rental income is unearned income unless it is earned income from self-employment (e.g., someone who is in the business of renting properties).

5. Rental Deposits Rental deposits are not income to the landlord while subject to return to the tenant. Rental deposits used to pay rental expenses become income to the landlord at the point of use.

6. Rent/Expenses Prior to Eligibility In determining net rental income, we do not consider rents received or expenses paid in months prior to SSI eligibility.

7. Rent /Expenses In Suspense Months In determining net rental income, we consider rents received or expenses paid in a month in which the case is in suspense status as if the case had been in pay status.

8. Multiple Family Residence In multiple family residence:

If the units in the building are of approximately equal size, we prorate allowable expenses based on the number of units designated for rent compared to the total number of units.

If the units are not of approximately equal size, we prorate allowable expenses based on the number of rooms in the rental units compared to the total number of rooms in the building. (The rooms do not have to be occupied.)
NOTE: Any expenses strictly related to a particular rental unit are deducted in total from the rent for that unit. Such expenses are not prorated.

9. Rooms in Single Residence For rooms in a single residence: a. We prorate allowable expenses based on the number of rooms designated for rent compared to the number of rooms in the house.

b. We do not count bathrooms as rooms in the house.

c. We count basements and attics only if they have been converted to living spaces (e.g., recreation rooms).

NOTE: Any expenses strictly related to a particular rental room are deducted in total from the rent of that room. Such expenses are not prorated.

10. Land We prorate expenses based on the percentage of total acres that is for rent.

11. Deductible Expenses Example of deductible expenses:
Interest and escrow portions of a mortgage payment (at the point the payment is made to the mortgageholder);
real estate insurance
repairs (i.e., minor correction to an existing structure);
property taxes;
lawn care;
snow removal; and
advertising for tenants.

12. Nondeductible Expenses Examples of nondeductible expenses:
principle portion of a mortgage payment; and
capital expenditures (i.e., an expense for an addition or increase in the value of property which is subject to depreciation for income tax purposes).

B. PROCEDURES

1. Evidence a. Use documents in the individual's possession (e.g., bills, receipts, etc.) to verify the gross rent and the dates received, and the expenses and the dates paid.
NOTE: The individual's most recent Federal tax return including Schedule E will be helpful in identifying past expenses and in estimating future rental income.
b. If no documents are available, obtain a signed statement explaining why no documents are available and providing an allegation of the gross rent and expenses paid for the period involved. Do not contact the tenants to verify the allegation.
c. If you are uncertain whether an expense is allowable (e.g., whether it is an incidental repair or a capital expenditure), contact the local Internal revenue Service (IRS) or refer to IRS Publication 527. Document the file with the information obtained form IRS.

2. Computation a. Determine gross rent received and deductible expenses month-by-month.
b. Subtract deductible expenses paid in a month from gross rent received in the same month.
c. If deductible expenses exceed gross rent in a month, subtract the excess expenses from the next month's gross rent and continue doing this as necessary until the end of the tax year in which the expense is paid.
d. If there are still excess expenses after applying b. above, subtract them from the gross rent received in the month prior to the month the expenses were paid and continue doing this as necessary to the beginning of the tax year involved.
NOTE: Do not carry excess expenses over to other tax years nor use them to offset other income.

3. Documenting Calculations Document the proration of allowable expenses and the calculation of net rental income by using the worksheet in E. Below or on another form (e.g., an RC or by using the Net Rents program on a personal computer).

4. Joint Owners Absent evidence to the contrary, apportion net rental income equally among owners. (A signed statement can be acceptable evidence if it reasonably explains why apportionment is not equal.)
If the gross rent is split between two joint owners before expenses are paid, deduct expenses paid by the SSI recipient from his/her portion of the gross rent.
5. Future Rental Income a. Use evidence from the retroactive period to estimate net rental income for the next 14 months; however, deduct only predictable expenses, (e.g., utilities, interest payments, taxes, etc.).
b. If an unpredictable expense is reported at a later date (e.g., a repair), deduct it in the month paid. If the expense exceeds the rent for that month, recalculate the rest of the estimated period as necessary (see 2.b. above).

6. Interest a. Use an individual's amortization schedule to determine interest expense.
b. If a schedule is not available, divide the yearly interest by twelve to determine monthly interest.

7. Refunds on Paid Expenses If the SSI recipient receives a refund for a n expense already paid (e.g., a property tax refund), recalculate his/her net rental income for the period involved.

C. EXAMPLES

1. Proration of Room Rental Expenses Mr. Joshua Steele, an SSI recipient, rents out a room in his house to a cousin. The house has six rooms excluding the bathroom. Since Mr. Steele's expenses (interest on a mortgage, utilities, etc.) are for the whole house, only one-sixth of the expenses is deducted from the gross rent.

2. Rental Income Interrupted Mrs. Anna Minnick, an SSI recipient, owns a multiple family residence and rents out half of it. In 9/89, her tenants leave and she receives no gross rent until 11/89 when new tenants move in. Mrs. Minnick continues to pay the mortgage and utilities on the residence during 9/89 and 10/89. The claims representative determines that Mrs. Minnick has excess expenses and no rental income for 9/89 and 10/89 because she received no gross rent for those months. The excess expenses are carried over into the calculation of net rental income for 11/89.

3. Gross Rent - Two Owners But Only One Owner Pays Expenses Mrs. Kate Henning, and SSI recipient, owns her home jointly with her son, John. Mrs. Henning rents out a couple of rooms in her house for $35./month and gives her son half of it ($175/month). Mrs. Henning pays all the rental expenses herself. To calculate Mrs. Henning's net rental income, deduct the allowable expenses she pays (prorated, if necessary) from $175 (her portion of the gross rent).

D. REFERENCES Property essential to self-support, SI 01130.500 ff.

In-kind support and maintenance in households with room rentals, SI 00835.470

Rounding of income, SI 02001.010.

Medicaid Provision Attachment #1 Attachment #2 Attachment #3 Attachment #5

CITATIONS	Social Security Act as amended, Section 1612(a)(2)9F0; 20 CFR 416.1121(d)
A. POLICY
1. Definitions	a. Rent is a payment which an individual receives for the use of real or personal property, such as land, housing or machinery b. Net rental income is gross rent less the ordinary and necessary expenses paid in the same taxable year. c. 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 expenses of managing or maintaining property. general sales taxes; and see A.11. below for a more specific list.
2. Depreciation Non Deductible	Depreciation or depletion of property is not a deductible expense.
3. When to Deduct Expenses	We deduct expenses when paid, not when incurred
4. Earned or Unearned Income	Net rental income is unearned income unless it is earned income from self-employment (e.g., someone who is in the business of renting properties).
5. Rental Deposits	Rental deposits are not income to the landlord while subject to return to the tenant. Rental deposits used to pay rental expenses become income to the landlord at the point of use.
6. Rent/Expenses Prior to Eligibility	In determining net rental income, we do not consider rents received or expenses paid in months prior to SSI eligibility.
7. Rent /Expenses In Suspense Months	In determining net rental income, we consider rents received or expenses paid in a month in which the case is in suspense status as if the case had been in pay status.
8. Multiple Family Residence	In multiple family residence: If the units in the building are of approximately equal size, we prorate allowable expenses based on the number of units designated for rent compared to the total number of units. If the units are not of approximately equal size, we prorate allowable expenses based on the number of rooms in the rental units compared to the total number of rooms in the building. (The rooms do not have to be occupied.) NOTE: Any expenses strictly related to a particular rental unit are deducted in total from the rent for that unit. Such expenses are not prorated.
9. Rooms in Single Residence	For rooms in a single residence: a. We prorate allowable expenses based on the number of rooms designated for rent compared to the number of rooms in the house. b. We do not count bathrooms as rooms in the house. c. We count basements and attics only if they have been converted to living spaces (e.g., recreation rooms). NOTE: Any expenses strictly related to a particular rental room are deducted in total from the rent of that room. Such expenses are not prorated.
10. Land	We prorate expenses based on the percentage of total acres that is for rent.
11. Deductible Expenses	Example of deductible expenses: Interest and escrow portions of a mortgage payment (at the point the payment is made to the mortgageholder); real estate insurance repairs (i.e., minor correction to an existing structure); property taxes; lawn care; snow removal; and advertising for tenants.
12. Nondeductible Expenses	Examples of nondeductible expenses: principle portion of a mortgage payment; and capital expenditures (i.e., an expense for an addition or increase in the value of property which is subject to depreciation for income tax purposes).
B. PROCEDURES
1. Evidence	a. Use documents in the individual's possession (e.g., bills, receipts, etc.) to verify the gross rent and the dates received, and the expenses and the dates paid. NOTE: The individual's most recent Federal tax return including Schedule E will be helpful in identifying past expenses and in estimating future rental income. b. If no documents are available, obtain a signed statement explaining why no documents are available and providing an allegation of the gross rent and expenses paid for the period involved. Do not contact the tenants to verify the allegation. c. If you are uncertain whether an expense is allowable (e.g., whether it is an incidental repair or a capital expenditure), contact the local Internal revenue Service (IRS) or refer to IRS Publication 527. Document the file with the information obtained form IRS.
2. Computation	a. Determine gross rent received and deductible expenses month-by-month. b. Subtract deductible expenses paid in a month from gross rent received in the same month. c. If deductible expenses exceed gross rent in a month, subtract the excess expenses from the next month's gross rent and continue doing this as necessary until the end of the tax year in which the expense is paid. d. If there are still excess expenses after applying b. above, subtract them from the gross rent received in the month prior to the month the expenses were paid and continue doing this as necessary to the beginning of the tax year involved. NOTE: Do not carry excess expenses over to other tax years nor use them to offset other income.
3. Documenting Calculations	Document the proration of allowable expenses and the calculation of net rental income by using the worksheet in E. Below or on another form (e.g., an RC or by using the Net Rents program on a personal computer).
4. Joint Owners	Absent evidence to the contrary, apportion net rental income equally among owners. (A signed statement can be acceptable evidence if it reasonably explains why apportionment is not equal.) If the gross rent is split between two joint owners before expenses are paid, deduct expenses paid by the SSI recipient from his/her portion of the gross rent.
5. Future Rental Income	a. Use evidence from the retroactive period to estimate net rental income for the next 14 months; however, deduct only predictable expenses, (e.g., utilities, interest payments, taxes, etc.). b. If an unpredictable expense is reported at a later date (e.g., a repair), deduct it in the month paid. If the expense exceeds the rent for that month, recalculate the rest of the estimated period as necessary (see 2.b. above).
6. Interest	a. Use an individual's amortization schedule to determine interest expense. b. If a schedule is not available, divide the yearly interest by twelve to determine monthly interest.
7. Refunds on Paid Expenses	If the SSI recipient receives a refund for a n expense already paid (e.g., a property tax refund), recalculate his/her net rental income for the period involved.
C. EXAMPLES
1. Proration of Room Rental Expenses	Mr. Joshua Steele, an SSI recipient, rents out a room in his house to a cousin. The house has six rooms excluding the bathroom. Since Mr. Steele's expenses (interest on a mortgage, utilities, etc.) are for the whole house, only one-sixth of the expenses is deducted from the gross rent.
2. Rental Income Interrupted	Mrs. Anna Minnick, an SSI recipient, owns a multiple family residence and rents out half of it. In 9/89, her tenants leave and she receives no gross rent until 11/89 when new tenants move in. Mrs. Minnick continues to pay the mortgage and utilities on the residence during 9/89 and 10/89. The claims representative determines that Mrs. Minnick has excess expenses and no rental income for 9/89 and 10/89 because she received no gross rent for those months. The excess expenses are carried over into the calculation of net rental income for 11/89.
3. Gross Rent - Two Owners But Only One Owner Pays Expenses	Mrs. Kate Henning, and SSI recipient, owns her home jointly with her son, John. Mrs. Henning rents out a couple of rooms in her house for $35./month and gives her son half of it ($175/month). Mrs. Henning pays all the rental expenses herself. To calculate Mrs. Henning's net rental income, deduct the allowable expenses she pays (prorated, if necessary) from $175 (her portion of the gross rent).
D. REFERENCES	Property essential to self-support, SI 01130.500 ff. In-kind support and maintenance in households with room rentals, SI 00835.470 Rounding of income, SI 02001.010.