Clients may have property that produces income, such as rental property, farms that are not the primary residence and mineral rights. The income must be passive, meaning the client is not engaged in activity that produces the income.

The income received from the property is countable per policy.
317:35-5-42(c)(3)(D)
317: 35-5-41.12(b)(3)

Because the property produces income, policy allows some or all of the value of the property to be exempted from being considered as a resource. Policy says the property must produce income equal to 6% of the property’s equity, up to a maximum of $6000. Here are the steps in making this determination.

When the client owns one income producing property.

1. Verify the fair market value of the property. (Verify based on the opinion of collateral sources with knowledge of property, e.g. a statement from someone with expertise in real estate, etc.) Subtract any verified loans.

Refer to article: Aged, Blind, Disabled (ABD): Resource – Mineral Rights – How to Determine Value

2. The equity of the property up to a maximum of $6,000 x 0.06
3. Verify / calculate the annual income generated by the property. (Verify with current year tax forms, 12 months of business records showing monthly income and itemized monthly expenses, 1099’s, etc.)
4. How to determine what to count.
   1. If the equity (Step 1) is under $6,000 and the annual income (Step 3) is equal to or greater than 6% of the property’s equity, up to $6000 (Step 2), all of the property’s equity is exempt. 317:35-5-41.12(b)(3)
   2. If the equity (Step 1) is over $6,000 and the annual income (Step 3) is equal to or greater than 6% of the property’s equity up to $6000 (Step 2), the countable resource is the property’s equity minus $6,000; code the difference in the Resource tab in FACS.
   3. If the equity (Step 1) is below $6,000 and the annual income (Step 3) is less than 6% of the property’s equity, up to $6000 (Step 2) count the full equity.
   4. If the equity (Step 1) is more than $6,000 and the annual income (Step 3) is less than 6% of the property’s equity, up to $6,000 (Step 2), count the full equity.

Refer to Example 1 and Example 2.

When the client owns more than one income producing property.

1. Verify the fair market value of each property. (Verify based on the opinion of collateral sources with knowledge of property, e.g. a statement from someone with expertise in real estate, etc.) Subtract any verified loans.

Refer to article: ABD: Resource – Mineral Rights – How to Determine Value

2. The equity of the property up to a maximum of $6,000 x 0.06
3. Verify / calculate the annual income generated by each property. (Verify with current year tax forms, 12 months of business records showing monthly income and itemized monthly expenses, 1099’s etc.)
4. How to determine what to count.
   (F) If an individual owns more than one (1) piece of income-producing property, the six percent (6%) return requirement applies individually to each property and the six-thousand ($6,000) equity value limit applies to the total equity value of all the properties meeting the six percent (6%) return requirement.
   1. Determine which properties produce annual income (Step 1) of at least 6% of the property’s equity, up to maximum of $6,000 (Step 2). Take the equity of the properties that produce at least 6% and add them together. If the sum of these properties is less than $6000, their combined equity is exempt as a resource.
      1. The equity of any property that did not produce income of at least 6% of the property’s equity, up to $6000, is a countable resource.
   2. Determine which properties produce annual income (Step 1) of at least 6% of the property’s equity, up to a maximum of $6,000 (Step 2). Take the equity of the properties that produce at least 6% and $6000, subtract $6000 from this sum. The difference is the countable resource.
      1. The equity of any property that did not produce income of at least 6% of the property’s equity, up to $6000, is a countable resource.
   3. If no property produces an annual income of at least 6% of its equity, up to $6000, the full equity of each property is a countable resource.

Refer to Example 3 and Example 4.

Example 1

Mary is applying for SSP and ADvantage. She receives $900 every quarter in mineral rights income. She has no loan out on the mineral rights. The fair market value is $10,800.

1. Step 1: (Property Equity). $10,800
2. Step 2: (6% of equity up to $6000). $6000 x 0.06 = $360
3. Step 3: (annual income) $900 x 4 = $3,600
4. Step 4: Determination of countable resource:
   • Is the equity (Step 1) more than $6,000? Yes
   • Is the annual income (Step 3) that the property produces at least 6% of the property’s equity up to $6000 (Step 2) = Yes
   • Since the equity of the property is more than $6,000, and the income produced is more than 6% of $6000, $6000 is subtracted from the equity. $10,800 – $6000 = $4,800.

Example 2

Abraham submits his annual review for SSP. He owns 2 acres of land without any debt or encumbrances. He allows people to harvest hay from the property for a fee. The fair market value (FMV) of the land is $5,890. He reports $510 in income as his share from the business.

1. Step 1: (Property Equity). $5,890
2. Step 2: (6% of equity up to $6000): $5890 x 0.06=$353.40
3. Step 3: (Annual income): $510 self-employment income
4. Step 4: Determination of countable resource:
   • Is the equity (Step 1) more than $6,000? No
   • Is the annual income (Step 3) that the property produces, at least 6% of its equity up to $6000 (Step 2) = Yes
   • Since the equity is less than $6,000 and the income produced is more than 6% of $6000, the property’s equity is exempt.

Example 3

Robert is applying for help with his Medicare premiums. He owns the mineral rights for three properties. He is receiving income for each property.

1. Property 1: fair market value – $3300, quarterly payments of $90
2. Property 2: fair market value – $1083, annual payment of $300
3. Property 3: fair market value – $3712, quarterly payment of $100.

Step 1 (Property equity):

1. Property 1: $3300
2. Property 2: $1038
3. Property 3: $3712

Step 2 (6% of equity up to $6000):

1. Property 1: $3300 x 0.06 = $198
2. Property 2: $1083 x 0.06 = $64.98
3. Property 3: $3712 x 0.06 = $222.72

Step 3 (Annual income):

1. Property 1: $90 x 4 = $360
2. Property 2: $300
3. Property 3: $100 x 4 = $400

Step 4:

• Does each property produce annual of income (Step 3) of at least 6% of its equity, up to $6000 (Step 2)? Yes all three properties produce at least 6% of its equity.
• Add the equity of the properties (Step 1) that produce annual income of at least 6% together: $3300 + $1083 + $3712 = $8095.
• Since the combined equity is more than $6,000 we subtract $6000 from the combined equity: $8095 – $6000 = $2095.

Depending on his other resources, Robert could be eligible for any of our programs.

Example 4

Eunice has an acre of land next to the University of Indio (Uol). The fair market value of the land is $4297. UoI pays her $100 a month to use the land for overflow parking. She also inherited mineral rights. The 1099 for the mineral rights show she made $160 last year. Two estimates show the mineral rights are worth $2900. There are no loans on either the acre of land or the mineral rights.

Step 1: (Property equity):

1. Acre of land: $4297
2. Mineral Rights: $2900

Step 2: (6% of equity up to $6000)

1. Acre of land: $4297 x 0.06 = $257.82
2. Mineral Rights: $2900 x 0.06 = $174

Step 3: (Annual income)

1. Acre of land: $1200
2. Mineral Rights: $160

Step 4:

• Does each property produce annual of income (Step 3) of at least 6% of its equity, up to $6000 (Step 2)? The Acre of land met the requirement and the Mineral rights did not.
• Add the equity of the properties (Step 1) that produce annual income of at least 6% together. $4297 (only the Acre of land made 6% of the equity).
• Since the equity of the Acre of land is less than $6000, its equity is completely exempt.
• Since the mineral rights did not make 6% of their equity, its entire equity is a countable resource.

Article Credit: Jennifer Mulder, & HRMS

Cleveland 14C