402.22.02 Essential Property Excluded – Up to $6,000 Equity – Regardless of Rate of Return
(Eff.10/01/05)
POM SI 01130.502
Applies to non-business property – may be real or personal property.
No specified rate of return is required.
Property must be in use or, if not in use for reason beyond the individual’s control, there must be a reasonable expectation that the required use will resume.
If the equity value exceeds $6,000, the excess is not excluded; it is countable toward the resource limit. (Example: If the resource is valued at $7,000, then $6,000 is excluded and $1,000 is counted.)
Procedure Example of Non-Business Property – Real or Personal:
Property used to grow produce or livestock raised solely for the individual’s household, like land
Property used in activities essential to the above – such as a tractor used for plowing or a boat for fishing. (Note: This does not include any vehicle that qualifies as an automobile.)
402.22.03 Essential Property Excluded – Up to $6,000 Equity – If It Produces a 6% Rate of Return
(Eff.10/01/05)
POMS SI 01130.503
Applies to non-home income producing property
Equity value = current market value – legal debts
Up to $6,000 can be excluded if the net annual return is equal to or greater than 6% of the equity value.
Table of Contents
Procedure Example of Non-Home Income Producing Property:
Property rented to someone for use in farming
Verification Needed:
Individual’s statement giving:
Description of property
Description of how it is used
Estimate of the Current Market Value (CMV) and any legal encumbrances
Verification of the CMV
Treatment:
Any equity value exceeding $6000 counts toward the resource limit.
(Example: Property meets the 6% rule but has an equity value of $7,500. The amount of $6,000 is excluded under this provision and the remaining $1.500 is countable.)
If the net annual return is less than 6%, the entire equity value is countable.
Exceptions:
Lower return that is beyond the individual’s control
Crop failure
Fire
Illness
There is a reasonable expectation that the property will again produce a 6% return.
Up to 24 months is allowed for the resumption of a 6% return. This begins with the first day of the tax year following the one in which the rate dropped below 6%.
Note: If the individual owns more than one piece of non-home property:
The 6% return rule applies individually to each piece.
The $6,000 equity value limit applies to the combined equity values of properties meeting the 6% return rule.
Example: Mr. Green has a piece of land on which he grows corn for sale at the market. The equity value of the land is $7,000.
He nets a minimum of $500 per year in sales. $500 $7,000 = 7.14%. Therefore, $6,000 of the equity value is excluded, and $1,000 is counted.
Last year, his crop caught fire and he made no money. He expects to plant/sell again next year at the regular rate. The $6,000 may still be excluded because the he had no control over the fire. His 24-month period began Jan 1.
3. Mr. Green owns three non-connected acres of pastureland. He rents them to different horse and cattle owners for $500 per year each. They have equity values of $2,000; $3,500 and $1,200 for a total of $6,700.
6% rule: $500 $2,000 = 25%
$500 $3,500 = 14% and $500 $1,200 = 42%
Since the 6% rule is met, $6,000 is excluded, and $700 is countable.
