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Effective: December 1, 2006 |
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19.10.05ar1 - Self-Employment Excluded Assets (Archive) |
Archived: April 1, 2008 |
A person is self-employed if they engage in a trade or business they own to earn income. It is not the same as Self-Support. See Self-Support Excluded Assets.
Assets that are used for a self-employment enterprise can be, but are not limited to tools, machinery, farm implements, unsold inventory, vehicle (cab), operating assets and/or any accounts for personal expenses.
Types of Self-Employment Assets.
MinnesotaCare (MCRE), MA Method A and GHO.
The following definitions are used within this section:
Capital assets consist of real or personal property used in a trade or business with a useful life of one year or more.
Operating assets are assets used in a trade or business such as bank accounts, stocks, bonds, mutual funds, certificate of deposits, trusts or property agreements.
Types of Self Employment Assets
The following is a general list of the types of self-employment assets:
l Vehicles.
l Tools, machinery, and farm implements.
l Unsold Inventory.
l Business checking accounts, including those that are used for both business and personal expenses.
l Real Property, such as farmland that is not adjacent to or adjoined to the homestead. See Non-Homestead Real Property.
l Rental Property, if it is part of a trade or business.
Example:
Glenda owns and is the landlord of five apartment buildings. This is Glenda’s only source of income.
Action:
Glenda is considered self-employed.
Example:
Carlos owns a small piece of farmland and rents it to the farmer of the neighboring property. Carlos used the land for hunting pheasant in his younger years.
Action:
Carlos is not self-employed as the land is not used in a trade or business.
Exclude assets of a trade or business, needed for a client to earn income, up to a maximum net value of $200,000 per household.
l Accept the client’s statement of the value of the business assets and the amount of encumbrances to determine the net value of the client’s self employment assets.
l For more information on whose self-employment assets to count in the household total see Deeming of Assets.
l Count the net value of self-employment assets in excess of $200,000 in the client’s asset total.
l Continue to exclude self-employment assets up to $200,000 that are temporarily not being used due to the self-employed person’s illness or disability.
Note: Exclude these assets up to one year if the person is expected to resume self-employment by the end of that time.
l If the business is jointly owned, see Jointly Owned Assets.
Example:
Darlene inherited her mother’s house and rents it out.
Action:
Although it produces income, it is not part of a trade or business. The equity value of the house is counted toward Darlene’s asset total.
Example:
Darrin farms 60 acres of land, with a net value of $300,000. This land is on the same expanse of land that his homestead is on. He also rents 10 acres of land to another farmer. This land is valued at $50,000 and is located two miles away.
Action:
The 60 acres adjacent to the homestead is considered part of the homestead and is excluded. The 10 acres Darrin rents is considered part of Darrin’s farm business. The $50,000 net value is applied to Darrin’s self-employment asset total. It is under the $200,000 self-employment asset limit so is excluded.
Exclude all assets of a trade or business, needed for a client to earn income.
l The excluded assets can be real or personal property, including liquid assets.
l There is no limit to the amount of assets to exclude for this provision.
l Clients do not need to report self-employment assets but they must be identifiable as self-employment assets and not personal assets.
l Allow an exemption for assets not in current use for reasons beyond the client’s control if the client expects to resume use within one year.
n Extend the exclusion for an additional one year if the nonuse is due to a disabling condition. To qualify for the extension the client must sign a statement indicating:
m The nature of the disabling condition.
m When the activity ceased.
m When the activity will resume.
Example:
Sylvia, age 72, is a self-employed cosmetic home sales representative. She has an unsold inventory of $12,000.
Action:
The unsold inventory is excluded as a trade or business because it is needed to earn income. It will not be counted toward her asset total.
Example:
Salvador, age 66, is self-employed as a handyman. He has plumbing tools with a net value of $2,000, construction machinery with a net value of $10,000, a mini-van with a net value of $8,000, and a checking account for the business with a balance of $3000. Unfortunately, Salvador fell from a ladder when putting up a light fixture. He provided a signed statement indicating he has a broken leg and a broken arm, that he fell on January 5th and should be able to return to handyman status on May 8th.
Action:
Salvador’s total business assets are worth $23,000, well over his $3000 asset limit. Because all of these assets are used for his self-employment business they are excluded and will continue to be excluded because he will be returning to work within a year.