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Effective: February 1, 2010 |
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20.25.20.40ar2 - Farm Income (Archive) |
Archived: June 1, 2011 |
There are differences between calculating farm income and other types of self-employment income that warrant particular attention. The following policy regarding farm income is for MA Method A, MA Method B, GAMC, MA-EPD and Medicare Savings Programs (MSP).
Farmland Rental Income - Earned or Unearned?
MA Method B, GAMC, MA-EPD and Medicare Savings Programs (MSP).
Common types of farm income that are considered self-employment income include:
l Proceeds from sale of crops, livestock, or products.
l Soil conservation payments, such as Conservation Reserve Payments (CRP).
l Proceeds from machine rental, including wages to the farmer/operator.
l Capital gains or capital losses.
Note: Consider capital gains or losses reported on tax Schedule F or other tax forms as part of the self-employment income. If capital gains or losses are distinguishable from other self-employed income, only count gains or losses if the household expects to have similar gains or losses in the next certification period.
Farmland Rental Income - Earned or Unearned?
Count farmland rental as earned income if one of these two conditions is met:
l The household is actively farming.
l The rental income meets the guidelines in Rental Income for earned income.
If none of the conditions are met then count net rental payments as unearned income.
Example:
Norbert resides in a long-term care facility. He is no longer actively farming. He is renting out his farmland while making reasonable efforts to sell it. He spends less than 10 hours a week maintaining or managing the property.
Action:
Count the rental payment he receives less any allowable expenses (such as taxes or property insurance) as unearned income. Norbert does not spend enough time (10 hours per week) maintaining the property, which is a requirement to consider the rental income as earned income.
To determine the self-employment income, deduct all expenses associated with producing the income from the gross farm income.
n Use the most recent tax return as a guide.
Note: If tax returns are not available or do not reflect true circumstances, use the client’s farm records to make a reasonable estimate.
n If the household is actively farming count the following payments as part of the self-employment income:
m Conservation Reserve Payments (CRP).
m Conservation Reserve Enhancement Payments (CREP).
m Reinvest in Minnesota Reserve Program (RIM) payments.
Note: If the household is not actively farming, count the payments listed above as unearned income to the person receiving it and not as self-employment income.
n Estimate income by averaging farm income and expenses over a 12-month period.
Note: If the farm income varies greatly from year to year, average the past three years of income. If any of those three years results in a loss, count income for that year as zero.
n Separate farm and shelter expenses using farm records and information from the mortgage lender, tax assessor, or Farmer's Home Administration.
Note: When it is not possible to separate farm and shelter expenses, determine the percentage of farm property to home property. Multiply the business expense by this percentage to determine the amount that is allowed to be deducted from the gross self-employment income.
MA Method B, GAMC, MA-EPD and MSP
To calculate farm income follow MA/GAMC Self-Employment for farm self-employed income.
Follow Unearned Income for farm unearned income.