Capital Gains
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This section includes information on income from capital gains
Policy
Capital gains are the profits from the sale or transfer of capital assets used in a self-employment business and count as self-employment income.
Such capital assets held as an investment for a set period include, and are not limited to, any of the following:
●Equipment
●Securities
●Real estate
●Other real property
●Capital gain or loss on the sale of cryptocurrency(g).
FAA determines capital gain by completing all of the following:
●The sale price of a capital asset
●Minus the purchase price
●Minus any cost of capital asset improvements
●Minus any sales commission, etc.
See Example 1.
FAA counts capital gains by one of the following methods:
●Counted as income in the month the income is received, or the money may be treated as a resource when a participant received capital gains in the past and expects to receive no other capital gains.
●The capital gain is a change of income when a participant anticipates receiving a capital gain in a future month.
●Annualized for the same period of time, as the self-employment income is averaged when the capital gain is expected to continue.
Countable income is used to determine an income budget. (See Income Budgeting to see how FAA determines the income budget.) FAA needs to know about income that is both countable and not countable to determine whether a budgetary unit’s income is exceeding their expenses. (See Income Eligibility for more information about how FAA uses countable and not countable income.)
Verification
The participant has the primary responsibility for providing verification. (See Participant Responsibilities – Providing Verification for additional policy.)
For NA, all of the following income is required to be verified before eligibility is determined:
●Reported on a new application, during the interview of a new application, or changes reported before the eligibility determination of a new application.
●Changes after an eligibility determination of a new application (e.g., a renewal application, mid approval contact, etc.) and any of the following apply:
The source of the income has changed.
The income is questionable(g) or unclear(g).
The reported income amount has changed by $51 or more.
The previous verification in the case file is more than 59 calendar days old.
For CA, all income is required to be verified before determining eligibility.
Self-employed participants may be eligible for a 40% expense deduction from income. To be eligible for the 40% Self-Employment Expense Deduction, only one allowable expense needs to be verified. When self-employment expenses are not verified using the verification process, eligibility is determined without those expenses.
Examples of verification that can be used for self-employment income and expenses include, and are not limited to, any of the following:
●Bookkeeping records
●Business ledgers listing income amounts received and expenses incurred
●Actual receipts
●Contracts for work
●Statements from patrons and companies
●Most recent Internal Revenue Service (IRS) U.S. Individual Income Tax Return (1040) form. Below are common IRS Schedule forms that the participant may provide in addition to the 1040:
●Schedule C, Profit or Loss From Business
●Schedule E, Supplemental Income and Loss
●Schedule F, Profit or Loss from Farming
●Schedules B-1, C, D, K, K-1, K-2, K-3, and M-3 of IRS U.S. Return of Partnership Income (1065) form (See Limited Liability Company (LLC) Definition for more information about LLCs.)
●The most recent IRS 1040 and Schedule forms can be used as verification of self-employment income and expenses when the participant indicates it accurately reflects the participant's current income.
●Rent or mortgage receipt for business property
●Property tax statements for business property
●Utility costs for business property
●Cleaning cost bills for business property
●Business location and equipment maintenance
●Personal records indicating personnel salaries or costs of outside labor, such as canceled checks and payroll checks
●Participant’s statement for self-employment income, when one of the following apply:
●Other attempts to obtain verification have failed.
●Obtaining documented or collateral contact verification may cause harm or undue hardship(g) for the participant.
●Participant statement verification may be used to verify self-employment expenses unless questionable(g).
Examples
1) Gomer purchased land for farming for $100,000.
When he farmed the land, he invested $25,000 to increase the productivity of the soil and the crops he grew.
When Gomer sold the property to a home builder, he sold the land for $200,000. Gomer's capital gain is figured as follows:
$200,000 – for the sale of land, minus
$100,000 – original purchase amount minus
$25,000 – improvements made on the land
$75,000 - TOTAL CAPITAL GAIN
Legal Authorities
7 CFR 273.9(b)(1)(ii)
7CFR 273.11(a)(3)
AAC R6-12-103(17)
last revised 10/02/2023