Rental Property Income
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This section concerns rental property income, including boarders, roomers, and commercial boarding houses.
Policy
Rental Property, Boarders, and Roomers
When a participant homeowner receives income from a rental property, boarder, or roomer, the income is countable as unearned income when an NA or CA participant manages the property for less than 20 hours per week.
NOTE When the participant has at least one allowable business expense, FAA deducts 40% from the gross income and counts the net income. See Example 1.
FAA considers rental property as countable self-employment income when a participant manages the property for 20 hours or more per week, e.g., rent collection, maintenance, or other work. See self-employment for details.
A boarder is a nonparticipant who pays a participant for providing a room and meals. Income from a boarder not included in the budgetary unit is countable and considered self-employment(g) when the definition is met.
NOTE FAA considers boarder income as countable unearned income when it does not meet the definition of self-employment.
See Boarders(g) for more information about why a boarder may or may not be included in the budgetary unit.
Commercial Boarding House
When a participant is the owner-operator of a commercial boarding house, the income received is countable self-employment income. This income is paid for services such as shelter and meals.
A 40% self-employment expense deduction is allowed for NA and CA when at least one self-employment expense is verified.
For NA, the 20% earned income deduction is allowed for self-employment income.
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 expenses are exceeding their income. (See Income Eligibility for more information about how FAA uses countable and not countable income.)
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.
Examples of verification that can be used for rental property include, and are not limited to, any of the following:
●Rental lease agreements
●Bank records
●Court records or court orders
●Current check reflecting gross income (Do not copy federal government checks)
●Federal or state tax forms
●Statement from the agency or payer providing the income
●Participant statement verification when not questionable and no other verification is available
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.)
NOTE 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 applies:
Other attempts to obtain verification have failed.
Obtaining documented or collateral contact verification may cause harm or undue hardship(g) for the participant.
NOTE Participant statement verification may be used to verify self-employment expenses unless questionable(g).
Examples
1) Murray owns two houses.
He rents one house and lives in the second. Murray’s tenant pays $1,000 per month for rent. Murray pays $500 for mortgage, insurance, and taxes.
Murray spends approximately five hours per week managing his rental property.
Since Murray spends an average of less than 20 hours per week managing his property, his rental income is unearned income. Murry is eligible for the standard 40% self-employment deduction because there is verification that an allowable business expense exists.
The standard 40% self-employment deduction is manually deducted from Murray’s rental income as follows:
.40 X $1,000 = $400
$1,000 - $400 = $600
Legal Authorities
7 CFR 273.9(b)(1)(ii)
AAC R6-12-501
last revised 10/02/2023