(A) Rent is a payment which an individual receives for the use of real or personal property, such as land, housing or machinery. Net rental income is gross rent less the ordinary and necessary expenses paid in the same taxable year. 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, general sales taxes and expenses of managing or maintaining property. 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. In determining net income do not consider rents received or expenses paid in months prior to medicaid eligibility. Expenses are deducted when paid, not when incurred. 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).
(1) Depreciation or depletion of property is not a deductible expense. Examples of deductible expenses include:
(a) Interest and escrow portions of a mortgage payment (at the point the payment is made to the mortgage holder)
(b) Real estate insurance
(c) Repairs (i.e., minor correction to an existing structure)
(d) Property taxes
(e) Lawn care
(f) Snow removal
(g) Advertising for tenants
(2) Examples of nondeductible expenses:
(a) Principal portion of a mortgage payment
(b) 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) In multiple family residences, if the units in the building are of approximately equal size, 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, 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.)
(C) For rooms in a single residence prorate allowable expenses based on the number of rooms designated for rent compared to the number of rooms in the house. Do not count bathrooms as rooms in the house. Basements and attics are counted only if they have been converted to living spaces (e.g., recreation rooms).
(D) For land, prorate expenses based on the percentage of total acres that are for rent.
(E) To verify income and expenses use documents in the individual's possession (e.g., bills, receipts, etc.) to verify the gross rent and the dates received, and the expense and the dates paid. Note: the individual's most recent federal tax return including "Schedule E" will be helpful in identifying past expenses and estimating future rental income.
(1) 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.
(2) If it cannot be determined whether an expense is allowable (e.g., whether it is an incidental repair or a capital expenditure) contact with the internal revenue service can be made.
(F) To determine the net countable income subtract the deductible expenses paid in a month from gross rent received in the same month. 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. If there are still excess expenses, 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. Do not carry excess expenses over to other tax years nor use them to offset other income.
(G) Absent evidence to the contrary, apportion net rental income in proportion to the percentage of ownership. If the gross rent is split between two joint owners before expenses are paid, deduct expenses paid by the medicaid applicant/recipient from his portion of the gross rent.
(H) Use evidence from the previous months to estimate net rental income for the next twelve months; however, deduct only predictable expenses (e.g., utilities, interest payments, taxes, etc.).
(I) 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.
Eff 9-3-77; 12-31-77;
3-1-79; 10-1-79; 12-7-79; 1-3-80; 10-1-88 (Emer.); 12-20-88; 10-1-89 (Emer.);
12-16-89; 5-1-91 (Emer.); 6-17-91; 7-17-91; 9-1-94; 10-1-02
Rule promulgated under: RC 111.15
Rule authorized by: RC 5111.01, 5111.011
Rule amplifies: RC 5111.01, 5111.011
R.C. 119.032 review dates: 6/11/2002 and 10/01/2007