Medicaid Requires that Net Rental Income be Paid to Nursing Home
A woman is single and owns rental property. I understand that the rental property is an exempt asset for Medicaid eligibility purposes but that the income generated by such rental property must be used to pay for her nursing home care. Is this figure gross or net of expenses? For example, if there are significant expenses associated with maintenance of the rental property, can rental income be used to pay for such expenses, then the remainder paid to the nursing home? Or, will all rental income have to be paid to the nursing home?
That’s right, rental property is noncountable for Medicaid eligibility purposes. Residents of nursing homes must spend down their assets to $2,155 (in most states) before Medicaid will cover the cost of their care. There are a few exceptions to the spend down rules, principally that they can keep their primary residences (unless their value exceeds certain limits). An additional exception is “business property essential for self support.” Rental property fits within this exception. So a nursing home resident may keep her rental property.
But all nursing home residents also must contribute their income to their cost of care. In terms of rental property, this will be their net income after expenses. However, be aware that this can be something of a lagging calculation. The resident’s obligation will be based on her historical rental income and expenses—essentially, what’s on her prior year’s tax return. If expenses increase or income falls—for instance, if a tenant moves out—it will be difficult to get this adjusted quickly.
Also, be aware that upon the nursing home resident’s death, the property will still be subject to a claim by the Medicaid agency for reimbursement of its expenditures on her behalf. This is known as “estate recovery.” (Read Medicaid Estate Recovery and Liens for more info about this.) Since the resident’s contribution of income to the nursing home reduces the state’s payment for her care, it will also reduce the state’s claim for recovery at her death. In other words, the more income the resident contributes to her cost of care, the lower the state’s cost of covering her, and the lower the claim against her estate will be at her death. So the more income that can be produced from the property during the woman’s life, the more value there will be remaining in the property after her death to pass on to her heirs. The interests of the state and the heirs are aligned in terms of maximizing income and reducing the Medicaid expenditures.
What Happens to Home Sale Proceeds If One Spouse Goes to Nursing Home?
When to Transfer Mother-in-Law’s House When Applying for Medicaid
Is a Life Estate or Irrevocable Trust Better for Protecting my House from Medicaid Estate Recovery?
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What about cash in the bank after my rental property has been taken by the government that uses eminent domain? If the government did not take my property, I would still own my rental property. Would the cash be exempt?
Unfortunately, cash is a countable asset even though it doesn’t seem fair that your property was converted to cash against your will. You could invest it in a new rental property.