Is an Income Producing Property Exempt from Spenddown Under NJ Medicaid?

HNWMedicaid Eligibility and Asset Protection Planning

medicaid spend downI was recently asked to evaluate whether income producing real estate is exempt from spend-down under NJ Medicaid.

Federal law sets forth a mechanism for inclusion or exclusion of income producing real property via 42. U.S.C. 1382b(a)(3), 20 C.F.R. 416 1220, and POMs SI 01130.500-503.  While the plain meaning of N.J.A.C. 10:71-4.4(b)(5) does not exclude rental property explicitly and N.J.A.C. 10:71-4.2 attempts to limit exclusions from available resources, New Jersey’s regulations cannot be interpreted inconsistently with 20 C.F.R. § 416.1220 or the POMs at SI 01130.500-503; therefore, the exclusion must be recognized.  Exclusion of leased property may be permitted under federal law. If property is excludable under federal law, (our regulation(s) N.J.A.C. 10:71-4.2(b)(2)) requires each county to determine if the income produced is exempt.

Legal Analysis of the Question

42 U.S.C. 1382b(a)(3) authorizes the Commissioner of Social Security to exclude property essential for self-support. The exclusion is created in 20 C.F.R. 416.1220, and a test for excluding income producing property essential for self-support is contained in the POMs, SI 01130.500-503.

42 U.S.C. 1382b states:

(a) Exclusions from resources

In determining the resources of an individual (and his eligible spouse, if any) there shall be excluded —

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(3) other property which is so essential to the means of self-support of such individual (and such spouse) as to warrant its exclusion, as determined in accordance with and subject to limitations prescribed by the Commissioner of Social Security, except that the Commissioner of Social Security shall not establish a limitation on property (including the tools of a tradesperson and the machinery and livestock of a farmer) that is used in a trade or business or by such individual as an employee;

(emphasis added). The exclusion is explained by 20 C.F.R. § 416.1220, which expressly references “houses or apartments for rent” as excludable if they are essential for self-support. It states:

Property essential to self-support; general.

When counting the value of resources an individual (and spouse, if any) has, the value of property essential to self-support is not counted, within certain limits. There are different rules for considering this property depending on whether it is income-producing or not. Property essential to self-support can include real and personal property (for example, land, buildings, equipment and supplies, motor vehicles, and tools, etc.) used in a trade or business (as defined in § 404.1066 of part 404), non-business income-producing property (houses or apartments for rent, land other than home property, etc.) and property used to produce goods or services essential to an individual’s daily activities. Liquid resources other than those used as part of a trade or business are not property essential to self-support. If the individual’s principal place of residence qualifies under the home exclusion, it is not considered in evaluating property essential to self-support.

The POMs provides exclusions for property used for a trade or business, and exclusions for non-business property used for production of income. Unless the client is in the business of renting real estate, real property subject to a lease is non-business property used for a trade or business under SI 01130.500(B)(1)(c). Depending on the nature of the property, equity in excess of 6,000 is not excluded. When attempting to exclude a resource, the burden will lie on the applicant. The applicant will need to satisfy both the POMs test and the test contained in N.J.A.C. 10:71-4.2. POMs lists the documentation which must be collected in SI 01130.503(D):

  1. Income Producing Real Property
  2. Individual’s Statement

Summary

When an individual claims real property that produces income (e.g., land, an apartment or a house for rent), the County Board of Social Services should obtain a signed statement which includes:

  • the number of years he or she has owned the property;
  • any co-owners of the property;
  • a description of the property;
  • the estimated value of the property and any encumbrances on it; and
  • the estimated net and gross income from the property for the current tax year.
  1. Supporting Evidence
  • Absent evidence to the contrary, the county is required to accept the statement with respect to years of ownership, identity of owners, and description of the property, then
  • Determine the rate of return based on income and value figures shown on the individual’s Schedule E (Supplemental Income Schedule) of Form 1040 for the year prior to filing of the application. If no tax return is available, obtain other appropriate evidence from the individual (e.g., a copy of the lease agreement for the period in question). If it is necessary to verify EV, see SI 01140.042.

(emphasis added).

N.J.A.C. 10:71-4.2 addresses verification of resources in section b. It specifically addresses verification of income produced by real property in section (b)(1), which states:

Real property which produces income: If the CWA determines that it is necessary to establish whether or not real property is producing income consistent with its current market value (see N.J.A.C. 10:71-4.4(b)(5)), inquiry shall be made of local real estate brokers, tax assessors or other persons knowledgeable of the prevailing rate of return on real property in the community.

Conclusion

In order for income producing property to be exempt from inclusion as an available resource, it must meet the requirements set forth in the federal POMs.

To discuss your NJ Medicaid matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq., of Hanlon Niemann & Wright, a Freehold Township, Monmouth County NJ Medicaid Attorney

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