F-4300, Resources Essential to Self-Support

Revision 09-4; Effective December 1, 2009

HHSC may exclude as a resource property essential to self-support, but count the income that the property produces.

Liquid resources do not qualify for exclusion as property essential to self-support unless they represent necessary assets of a trade or business. See Section F-4330, Business Property.

F-4310 Nonbusiness Property – $6000/6%

Revision 09-4; Effective December 1, 2009

A person (and spouse, if any) is allowed to have nonbusiness property that is producing income necessary to self-support, if the:

• equity value does not exceed $6,000; and
• person receives a net annual rate of return of at least 6% of the equity value.

If a person's equity in income-producing nonbusiness property exceeds $6,000, and the property is producing a net annual rate of return of at least 6%, the excess equity value is a countable resource. For example, total equity value minus $6,000 equals the amount to be counted, together with any other resources.

If the net annual rate of return is less than 6% of the equity value, the total equity value is a countable resource.

In some instances, a person may own more than one income-producing nonbusiness property. To be excludable, each property must separately produce a 6% rate of return. A maximum of $6,000 may be excluded from the combined equity value of all properties producing a 6% net annual rate of return. The combined equity value in excess of $6,000 is a resource.

Note: This exclusion does not apply to liquid assets. For example, a note cannot be excluded under the $6,000/6% policy.

Nonbusiness property that is essential to self-support includes, for example, rental property, leased farm property and income-producing mineral rights.

Confirm that the equity value of the resource does not exceed $6,000, and that the resource produces a net annual rate of return of at least 6% of the equity value. In determining equity value, deduct any encumbrances such as mortgages or liens.

Sources for verifying ownership include:

• copy of the deed,
• copy of the will, and
• copy of a current tax statement or assessment.

Sources for verifying income include:

• lease agreement;
• rent receipts;
• bank deposit slips;
• canceled checks and receipts from expense (to determine net income); and
• recent income tax return.

Sources for verifying the current market value include:

• copy of a mortgage or lien,
• copies of bills for repairs or services, and
• recent income tax return.

Reference: Verification procedures for mineral rights are explained in Section F-4213, Mineral Rights.

F-4311 Examples of $6000/6%

Revision 10-3; Effective September 1, 2010

Vernon Underwood owns farmland with a verified equity value of $4,500. Mr. Underwood has leased the land for $800 a year. Because the equity value of the property is less than $6,000, and the net annual rate of return exceeds the required minimum of 6%, Mr. Underwood's farmland is excluded as a resource.

George Best owns three lots, none of which is home property. A billboard company rents the lots from Mr. Best to use for advertising. The verified equity value of the lots and the amounts of rent received are:

Although each lot is worth less than $6,000, and each is producing a net annual rate of return of more than 6% of the equity value, the combined value of the three lots exceeds $6,000. Count the excess equity value of $400 as an available resource.

Ruby Markham has mineral rights with a verified equity value of $7,000. Her net annual income from the mineral rights at the time of redetermination was $450. She had no other countable resources.

Ms. Markham remained eligible because she was receiving more than 6% of the equity value of the mineral rights, and the excess equity, combined with any other resources, did not exceed the resource limit.

At a subsequent redetermination, verification received indicated that Ms. Markham's equity in the mineral rights remained at $7,000. The net annual rate of return, however, had changed to $280. An officer of the oil exploration company verified that production would continue to decrease during the next two years. Because the net annual rate of return was less than 6% of the equity value of $7,000, the mineral rights are a countable resource and Ms. Markham is no longer eligible for assistance.

F-4312 Rate of Return Less Than Reasonable

Revision 09-4; Effective December 1, 2009

A person's non-business property that is valued at $6,000 or less can be excluded even if it produces less than a 6% annual rate of return, if all of the following conditions are met:

• Unusual or adverse circumstances cause a temporary reduction in the rate of return.
• The property is used in an income-producing activity.
• The property usually has net annual rate of return of at least 6% of the equity value of the property.
• The person expects the property to resume producing a reasonable return within 18 months of the end of the calendar year in which the unusual incident caused the reduction in the rate of return. If, by the end of the time allowed, the property is not producing a net annual rate of return of at least 6% of the equity value, the resource cannot be excluded.

The person must send a convincing written explanation to exclude the property temporarily. Information from other knowledgeable sources may also be appropriate. Supervisory concurrence with the decision is recommended.

If granting an exclusion, review the case at each redetermination and again near the end of the time allowed (18 months from the end of the calendar year of the unusual incident).

Document in the case record the reason for the exclusion. Also show the rate of return that is temporarily being received.

F-4320 Employment-Related Personal Property

Revision 09-4; Effective December 1, 2009

HHSC excludes personal property that a person uses in connection with his employment. Also excluded is any resource that a person uses exclusively to produce items for home consumption and is a significant factor in his support and maintenance.

Resources used to produce items for home consumption include, but are not limited to:

• cows supplying milk,
• chickens supplying eggs, and
• garden plots for growing vegetables.

At application and at each redetermination, determine whether a resource used for producing items for home consumption is essential to the person's self support. If the resource, or the person's use of it for self-support, is questionable, obtain supervisory concurrence.

On the worksheet, record information about the resource owned and the reason for exclusion or nonexclusion.

F-4330 Business Property

Revision 09-4; Effective December 1, 2009

Property essential to self-support that is used in a person's trade or business is excluded from resources regardless of value or rate of return. Excludable business property is tangible business assets, including, but not limited to, land and buildings, equipment and supplies, inventory, livestock, motor vehicles and all liquid assets needed for the business.

Personal property used in a person's trade or business is also excluded from resources. Excluded personal property includes, but is not limited to, tools, safety equipment and uniforms.

To be considered as an excludable resource, business property (including personal, business-related property) must be in current use in the person's trade, business or employment. If the property is not in current use, HHSC excludes the property only if it has been previously used by the person, and if it is reasonable to expect that it will be used again.

When a person alleges owning trade or business property, determine if a valid trade or business exists and if it is in current use. Obtain the following documentation:

1. a description of the trade or business,
2. a description of its assets,
3. the number of years it has been operating,
4. the identity of any co-owners, and
5. the estimated gross and net earnings for the current tax year. Business tax returns (IRS Form 1040 and appropriate schedules) can be used to determine earnings and the validity of the trade or business.