Introduction
How is the receipt of “rent” payments for renting out a house, condominium, apartment, or lot, treated by Medicaid? Will rental income count towards Medicaid’s income limit? Will rental income make one Medicaid-ineligible? These questions illustrate common concerns of persons who own rental property and require Medicaid-funded long-term care.
Money received as “rent” is counted towards Medicaid’s income limit. Depending on the amount of rental income and one’s other income, rental income could push one over Medicaid’s income limit, causing one to be Medicaid-ineligible. However, certain expenses can be deducted from the monthly income produced by the property, which decreases the amount of income that is counted towards the limit. Furthermore, for persons who are over Medicaid’s income limit, there are Medicaid planning strategies that can enable one to become income-eligible.
While not covered here, another important component to Medicaid eligibility and the treatment of “income producing property” is Medicaid’s asset limit. Medicaid will allow up to $6,000 of a rental property’s equity value to be disregarded if specific criteria is met. We go into much more detail about Medicaid’s asset limit and property that produces passive income, meaning it is not generated via a business or trade, in a separate article, “Do Rental Properties Count Towards Medicaid’s Asset Limit?”. Different rules apply for Medicaid applicants who own a business.
Medicaid’s Income Limit
For Medicaid eligibility, Medicaid has an income limit. This limit varies based on one’s marital status and the program for which one is applying.
For seniors applying for Regular Medicaid, often called Aged, Blind and Disabled Medicaid, the 2024 income limit for a single applicant is generally $943 / month or $1,255 / month. For married couples, regardless of if one or both spouses are applicants, the income limit is usually $1,415 / month or $1,704 / month. For seniors applying for Nursing Home Medicaid or a HCBS (home and community based services) Medicaid Waiver, the income limit is usually $2,829 / month. If an applicant is married and their spouse is also an applicant, each spouse is permitted up to $2,829 / month in income. If only one spouse is an applicant, the income of the non-applicant spouse is disregarded and does not impact their applicant spouse’s income eligibility. Furthermore, the non-applicant spouse may be entitled to a Monthly Maintenance Needs Allowance (MMNA), or in other words, a Spousal Income Allowance, from their applicant spouse. While state-specific, in 2024, the maximum MMNA is $3,853.50 / month. See state-specific income limits and MMNAs.
When and How Rental Property Income Counts Towards Medicaid’s Income Limit
Yes, rental payments received by a Medicaid applicant / beneficiary are considered income and are calculated towards Medicaid’s income limit. However, security deposits / rental deposits are not counted as income as long as one intends to return it to the tenant when the rental agreement has ended. If one uses any portion of a security deposit, it is counted as income.
Allowable Deductions from Rental Property Income
Rental income may not be counted in its entirety towards Medicaid’s income limit. Medicaid allows certain deductions, or in other words, allows specific expenses to be subtracted from one’s rental income, effectively lowering the amount of “countable” income. Generally speaking, if the amount of one’s deductions are greater than one’s monthly rental income, the excess deductions are applied to subsequent months. Allowable deductions may include the following.
– Advertising for Tenants
– Home Maintenance / Essential Repairs
– Interest / Escrow Payments on Mortgage
– Lawn Care
– Management Fees – for a professional property manager
– Property Taxes
– Property Insurance
– Snow Removal
– Utilities (paid for by the property owner)
To be clear, the principal of one’s mortgage payment is not an allowable deductible, nor are property improvements, such as an addition to the home.
Examples:
1) Joann receives $800 / month for renting out her condo. In any given month, she pays $50 in taxes, $25 in insurance, and $75 in management fees, equaling $150 in allowable deductions. Her countable rental income is $650 / month ($800 – $150 = $650).
2) Matthew receives $500 in monthly income for renting out his small house. The roof needed major repairs and cost $650 to fix it. Since this allowable deduction is greater than his monthly rental income ($500 – $650 = -$150), he will have no countable rental income for the initial month. For the subsequent month, the extra $150 in deductions will carry over and he will have $350 in countable rental income ($500 – $150 = $350).
Required Documentation for Rental Property Income
The Medicaid agency will likely require documentation verifying one’s rental income and deductions. This may include copies of the following:
To Verify Rental Income
– Lease / Rental Agreement
– Rent Receipts
– Canceled Checks
– Bank Deposit Slips
– Income Tax Return –income producing property is generally reported on Schedule E of Form 1040 (Supplemental Income and Loss)
To Verify Allowable Deductions
– Bills
– Receipts
What to Do if Over the Income Limit
If one’s rental income pushes them over Medicaid’s income limit, there are Medicaid planning strategies available that can enable them to still meet Medicaid’s income limit. However, it is vital that one be aware of state-specific rules and that it be implemented correctly, otherwise it can lead to Medicaid denial. It is highly recommended that persons with “excess” income seek the counsel of a Professional Medicaid Planner to discuss their specific situation prior to Medicaid application. This is especially true because typically persons whose rental property income exceeds the income limit also exceed Medicaid’s asset limit.
Miller Trusts
Also called Qualified Income Trusts, Miller Trusts allow persons applying for Nursing Home Medicaid or a HCBS Waiver to become income-eligible. In simplified terms, “excess” income is put into an irrevocable trust, which means the terms of the trust cannot be changed or canceled. A trustee, someone other than the Medicaid applicant, is named to manage the account, and trust funds can only be used for very specific expenses. For instance, funds can be used to pay a Medicaid beneficiary’s Personal Needs Allowance, a Spousal Income Allowance, or go towards the cost of their long-term care. Unfortunately, Miller Trusts are only permitted in approximately half of the states.
Medically Needy Pathway
States that allow the Medically Needy Pathway are also called “Spend Down” States. This pathway to income-eligibility allows seniors to “spend down” their “excess” income on medical expenses, such as doctor bills, nursing home services, and prescription drugs. Once one’s income has been spent down to their state’s medically needy income limit, they will be income-eligible for the remainder of the spend down period. Not all states allow the Medically Needy Pathway. Furthermore, in states that do allow it, not all states extend this pathway to seniors, nor is this pathway necessarily extended to all long-term care Medicaid programs. For instance, it may be permitted for Regular Medicaid and Nursing Home Medicaid, but not HCBS Medicaid Waivers.
Work with a Professional Medicaid Planner
It is recommended that persons over Medicaid’s income limit contact a Professional Medicaid Planner to discuss their specific situation. Medicaid Planners are skilled in assisting persons in lowering their countable income and implementing income reducing planning strategies. Incorrectly implementing a Medicaid planning strategy can result in Medicaid ineligibility. Find an Expert Medicaid Planner for assistance.