Introduction
How does owning rental property, such as an apartment, house, or condo, impact one’s eligibility for Medicaid? Will the property count towards Medicaid’s asset limit? Will it need to be sold for one to become Medicaid-eligible? These commonly asked questions are concerns of those who own rental property, but require Medicaid-funded long term-care. While persons with rental properties may still be asset-eligible for Medicaid, the topic of whether or not “income producing property” is counted as an asset is complicated. Many factors come into play, including the property’s equity value (the property’s fair market value after subtracting any debt against it), the amount of annual income produced by the property, the expected amount of annual income in the future, and state-specific rules.
The information contained in this article applies to property that produces passive income (income that is not generated via a business or trade). In addition to “home” rental properties, it also applies to mineral rights (ownership rights to resources that are underground, such as natural gas, silver, or oil), timber rights (i.e., ownership rights to cut down trees), leased farm land and / or equipment, forest land (i.e., for hunting), and lots (i.e., for boat / RV storage). In Medicaid-speak, these properties may be called “income-producing nonbusiness property” and “non-business income producing property”. Different rules apply for Medicaid applicants who own a business or use their own land and /or other assets to produce food for their own use.
Another piece of the puzzle when it comes to rental properties and Medicaid eligibility is how the receipt of rental payments impact Medicaid eligibility. It is frequently asked if “rent” payments count towards Medicaid’s income limit. The answer is “yes”. However, we go into much more detail about this topic, including allowable deductions to lower the amount of one’s countable monthly rental income, in a separate article, “Does Income Generated from Rental Properties Count Towards Medicaid’s Income Limit?”.
Medicaid’s Asset Limit
There is an asset limit to qualify for long-term care Medicaid in all states, but California, which eliminated their asset limit effective January 1, 2024. Generally speaking, the asset limit in 2024 is $2,000 for a single applicant. However, there are state-specific differences, and some exceptions follow: Connecticut ($1,600), Nebraska ($4,000), Missouri ($5,909.25), Maine ($10,000), Illinois ($17,500), and New York ($31,175).
For married couples, the asset limit differs based on if one or both spouses are applicants and the Medicaid program for which one is applying. Medicaid considers all assets of a married couple to be jointly owned, and therefore, the assets of both spouses are considered in the eligibility process. For Regular Medicaid, the couple income limit is generally $3,000 or $4,000, regardless of if one or both spouses are applicants. Some exceptions follow: Connecticut ($2,400), Nebraska ($6,000), Missouri ($11,818.45), Maine ($15,000), Illinois ($17,500), and New York ($42,312). For Nursing Home Medicaid and HCBS (home and community based services) Medicaid Waivers, when both spouses are applicants, each spouse is generally allowed $2,000 in assets. When only one spouse is an applicant, the applicant spouse is usually permitted $2,000 in assets, and the non-applicant spouse is allocated a larger amount of the couple’s assets as a Community Spouse Resource Allowance (CSRA). In 2024, the maximum CSRA is $154,140.
Not all assets are counted towards Medicaid’s asset limit. Non-countable (exempt) assets generally include one’s primary home, household furnishings and appliances, a vehicle, and personal items. A rental property may also be exempt up to $6,000, if certain criteria is met.
Does a Rental Property Count towards Medicaid’s Asset?
Medicaid will disregard (not count) up to $6,000 of a rental property’s equity value if the annual income produced by the property (its “rate of return”) is at least 6% of the property’s equity value. Recall that the equity value is the fair market value of the property after subtracting any debt against it, such as a mortgage. To be clear, even if the annual income requirement is met, any equity value over $6,000 will count towards Medicaid’s asset limit.
Examples:
1) Bill owns a small lot with an equity value of $2,000. It is being leased as boat storage for $600 / year. Six percent of the lot’s equity value is $120 ($2,000 x 0.06 = $120). Since the annual income is greater than 6% of the lot’s equity value, the lot is exempt from Medicaid’s asset limit.
2) Joan has a small studio apartment with an equity value of $10,000. She rents it out for $4,200 / year. Six percent of the apartment’s equity value is $600 ($10,000 x 0.06 = $600). Since the annual income is greater than 6% of the apartment’s equity value, $6,000 of the $10,000 will not count towards Medicaid’s asset limit. The remaining $4,000 will count towards the limit.
3) Calvin owns farmland with an equity value of $4,500 that he leases out to a relative for a mere $200 / year. Six percent of the farmland’s equity value is $270 ($4,500 x 0.06 = $270). Since the annual income is less than 6% of the farmland’s equity value, it is not exempt, and $4,500 will count towards Medicaid’s asset limit.
In the examples above, we used 6% of the property’s entire equity value to calculate if one met the annual income requirement. However, some states, like Delaware, Ohio, Utah, and West Virginia, use 6% of the potentially excluded equity value.
Examples:
1) Ron owns a mobile home with an equity value of $7,000. He rents it out annually for $3,000. Up to $6,000 can potentially be excluded. Six percent of the potentially excluded equity is $600 ($6,000 x 0.06 = $360). Since the annual income is greater than 6% of the potentially excluded equity, $6,000 will not count towards Medicaid’s asset limit. The remaining $1,000 will count towards the limit.
2) Olivia has a very small piece of land with an equity value of $800 that is leased for a billboard for $360 / year. Six percent of the potentially excluded equity is $48 ($800 x 0.06% = $360). Since the annual income produced by the lot is greater than 6% of the potentially excluded equity, the lot is exempt from Medicaid’s asset limit.
Owning More than One Rental Property
When an individual owns more than one rental property (or income producing property), the 6% annual income requirement is applied separately to each property. If any property does not meet the 6% rate of return, its equity will count in its entirety towards Medicaid’s asset limit. The equity value of each property that produces a minimum of 6% of its equity value will be combined and a maximum of $6,000 will be excluded from Medicaid’s asset limit.
Examples:
1) Victoria has three lots she leases out for car storage.
Lot 1 has an equity value of $2,500 and is leased out for $720 / year. The annual income is greater than 6% of the equity value, which is $150 ($2,500 x 0.06 = $150).
Lot 2 has an equity value of $3,000 and is leased out for $800 / year. The annual income is greater than 6% of the equity value, which is $180 ($3,000 x 0.06 = $180).
Lot 3 has an equity value of $4,500 and is leased out for $1,000 / year. The annual income is greater than 6% of the equity value, which is $270 ($4,500 x 0.06 = $270).
The combined equity value of the lots is $10,000. Even though each property individually generates at least 6% of its equity value in income annually, only $6,000 of the total $10,000 in equity will be exempt. The remaining $4,000 will count towards Medicaid’s asset limit.
2) Jack has two cabins he rents out.
Cabin 1 has an equity value of $6,000. Due to its poor condition, it is not rented. Therefore, there is no annual income.
Cabin 2 has an equity value of $10,000. It generates an annual income of $1,500. This is greater than 6% of its equity value, which is $600 ($10,000 x 0.06 = $600).
Cabin 1 does not generate an annual income equivalent to or more than 6% of its equity value, and therefore, its full equity value of $6,000 will count towards Medicaid’s asset limit. While Cabin 2 does meet the 6% rule, only $6,000 of its $10,000 equity value will be exempt from the asset limit (due to the $6,000 limit). Therefore, $10,000 will count towards the asset limit ($6,000 from Cabin 1 and $4,000 from Cabin 2).
Required Documentation for Asset Exemption
The Medicaid agency will likely require a statement describing the property and documentation verifying ownership of the property by the Medicaid applicant (and any co-owners), the property’s fair market value / current market value and any debt against it, and the amount of income the property generates. The exact documentation required varies by state, but may include copies of the following:
To Verify Ownership of the Property
– The deed
– A will (if inherited) with death certificate
– Property tax statement
To Verify Current Market Value & Debt Against the Property
– Mortgage / Lien
– Bills for services / repairs
– Tax statement with current assessment
To Verify Rental Income
– Lease / Rental Agreement
– Rent receipts
– Canceled check
– Bank deposit slips
– Income tax return –income producing property is generally reported on Schedule E of Form 1040 (Supplemental Income and Loss)
Six Percent Rate of Return Exception
As mentioned above, if the 6% rate of return is not met, the rental property’s entire equity value is counted towards Medicaid’s asset limit. There is, however, an exception that allows up to $6,000 in equity value to be exempt if the property generally produces an annual income of 6% of its equity value. The criteria is as follows:
1) The annual income generated by the property is lower than 6% of the property’s equity value for a reason that is out of the person’s control.
2) It is reasonably expected that the property will again produce a 6% rate of return. Most states limit the amount of time it allows for the property to resume generating this income. For example, Texas will exclude it for 18 months, and Indiana, Minnesota, Ohio, Mississippi, and Utah will exclude it for 24 months.
For this exception, a statement explaining the decline in annual income, as well as tax returns from the previous year or two (to show that the property previously produced a 6% rate of return), may be required.
State-Specific Differences
There are state-specific differences in the treatment of rental properties and their impact on Medicaid eligibility. While some of the differences are below, this topic is complex and there could be other differences based on the state.
– Exemption Amount
Some states will disregard (not count) an amount greater than $6,000. New York is one such state and allows up to $12,000 in equity value to be exempt from Medicaid’s asset limit. Florida is even more liberal, and does not set a limit. Given the property generates an annual income that is consistent with rental income produced by similar homes in the area, the entire equity value is disregarded and does not count towards the asset limit.
– Calculation of 6% Rate of Return
Some states, such as Delaware, Ohio, Utah, Washington, and West Virginia, exclude up to $6,000 of a property’s equity value if it generates an annual income of at least 6% of the excluded equity value rather than the property’s total equity value.
– Length of Time to Resume 6% Rate of Return
States allow different lengths of time for a rental property to resume producing an annual income of at least 6% of its equity value (if the decline in earnings was for reasons beyond the person’s control) and still utilize up to $6,000 exemption. As mentioned above, Texas allows up to 18 months, and Indiana, Minnesota, Ohio, Mississippi, and Utah allow up to 24 months.
What to Do if Property Puts One Over Medicaid’s Asset Limit
Given only up to $6,000 equity value is exempt from Medicaid’s asset limit, rental properties, particularly apartments, houses, and condos, may push one over the limit. However, persons who are over the asset limit can still become asset-eligible and qualify for long-term care Medicaid. Some options follow. It is highly recommended that persons who have income producing property contact a Professional Medicaid Planner to discuss their specific situation prior to Medicaid application.
– Sell the Property and “Spend Down”
One can sell their rental property and spend down the “excess” assets on non-countable ones until they reach Medicaid’s asset limit. When doing so, one must not gift assets or sell them under fair market value as this could violate Medicaid’s Look-Back Period if done within 60-months of long-term care Medicaid application. Violating the Look-Back Rule results in a Penalty Period of Medicaid ineligibility. Ways to “spend down” without violating this rule include purchasing an Irrevocable Funeral Trust, making home modifications, purchasing home appliances and furnishings, and paying for long-term care services and supports.
– Establish a Medicaid Asset Protection Trust (MAPT)
With a MAPT, one creates the trust and names a trustee (to manage the assets within it) and a beneficiary (who will inherit the assets). The trust must be irrevocable, which means the terms of the trust cannot be changed or canceled, and the trustee must follow strict rules, such as not using trust funds on the individual who created the trust. While MAPTs protect assets, such as rental properties, from Medicaid’s asset limit, it does violate Medicaid’s Look-Back Rule. Therefore, it must be created well in advance of the need for long-term care Medicaid. Additionally, MAPTs protect assets from Medicaid’s Estate Recovery Program (MERP). Via MERP, following the death of a long-term care Medicaid beneficiary, a state’s Medicaid agency attempts reimbursement of long-term costs for which it previously paid.
– Consult with a Professional Medicaid Planner
The rules surrounding the treatment of rental properties are complex, differ based on the state, and sometimes change. Medicaid Planners are experienced in state-specific rules and the planning strategies available if one is over Medicaid’s asset (and / or income) limit. Applying without full awareness of the rules can be cause for a Medicaid denial. Find a Medicaid Expert.