Property Other than the Principal Residence
Other real property can be exempt if the net market value of the property is $6,000 or less and if the beneficiary is “utilizing” the property, i.e., receiving yearly income of at least 6% of the net market value.
John has some land whose net market value is $5,000. If he can generate at least $300/year in income (6% of $5,000) from the land, the property will be exempt.
If the net market value of the other real property is more than $6,000, the first $6,000 of net value will be exempt if the property generates yearly income of at least 6% of the net market value. Any property value in excess of $6,000 will be added to the beneficiary’s countable assets.
The net market value of John’s land is $9,000. The first $6,000 of value will be exempt if he can generate at least $540/year in income (6% of $9,000), and the remaining $3,000 in value will be added to his countable assets. If the additional $3,000 puts John above the asset limit of $130,000, he will have to spend down the excess amount.
How To Reduce Net Market Value
The net market value of real or personal property is the owner’s equity in that property and is determined by subtracting the encumbrances (mortgages, loans, property tax liens, easements, etc.) of record from the market value.
The market value of John’s land is $11,000, but he still owes $2,000 on the property. Thus, the “net” market value is $9,000. As long as John generates at least $540/year from the property, the first $6,000 will be exempt and the remaining $3,000 in value will be added to his countable assets. If the additional $3,000 puts John above the asset limit of $130,000, he will have to spend down the excess amount.
Other real property must meet utilization requirements in order to be exempt. This means that the property must generate at least 6% a year of the net market value. If the property does not generate income, then the full net market value of the property will be counted.
If the applicant has made bona fide efforts to meet the utilization requirements but is unable to do so, the utilization period can be extended indefinitely and the applicant can be eligible. For example, if the applicant has made bona fide efforts to sell the property, but is unable to do so, the property won’t be included in the countable resources. Note that the regulations include specific criteria for what constitutes “good cause” and “bona fide” efforts to sell.
The market value of property is very important because it is used to determine the net market value. The market value of real property in California is one of the following, whichever is less: (§50412)
- the assessed value determined under the most recent property tax assessment
- the appraised value by a qualified real estate appraiser
The market value of real property outside of California is one of the following, whichever is less:
- the value established by the assessment method used where the property is located
- the appraised value by qualified real estate appraiser
Property used in whole or in part as a business or as a means of self-support is exempt. Rental real property, however, will not be exempt unless the property is clearly held as a business. If the applicant can demonstrate with tax returns or other evidence that the property is clearly a “business” not just investment property, it can be exempt.
Income from Real Property
If a Medi-Cal beneficiary is renting real property, the “net” income from the property will be counted when determining the share of cost. Certain expenses are deducted from the gross rental income to determine the net income. These include taxes and assessments, interest payments (not principal), insurance, utilities and upkeep and repairs. Upkeep and repairs are the greater of either: the actual amount expended for upkeep and repairs during the month or 15% of the gross monthly rental, plus $4.17 per month. Note that other calculations are used for income from rental of rooms, rental of unit(s) in a multiple dwelling unit or other dwellings on the property.