TN 39 (09-96)

SI 00835.471 Conversions — Distinguishing Between Household Costs and Non-Household Costs

A. Policy

When determining household costs for ISM determinations, it may be necessary to distinguish between actual household costs and non-household costs (i.e., costs associated with operating a business or agricultural operation in the home). Business or agricultural expenses are not household costs for ISM determinations.

B. Procedure

Use the conversion methods below, or other available methods that seem reasonable, to determine the portion of a vendor charge attributable to the household residence versus that portion attributable to business (including agricultural) activity.

1. Household v. Business Expenses Chart

ItemSituations/ EvidenceHow to Convert to
Household Cost
MortgageHousehold mortgage payment increased to provide additional funds for business expendituresUse payment amount under previous mortgage.
 Real property tax statement shows percentage of tax attributable to residence.Multiply mortgage payment by the given percentage.
 Income tax return shows personal deduction of portion of real property tax.Multiply mortgage payment by the percentage of deducted real property tax to total real property tax.
Mortgage or Real Property TaxesFederal income tax return, Schedule C, Part II, shows business deduction of portion of mortgage payments/real property taxes.Subtract deducted portion from total paid.
Real Property TaxesReal property tax statement shows amount of tax attributable to residence.Use amount given on tax statement.
 Real property tax statement shows percentage of assessed value attributed to residence.Multiply total real property tax by the given percentage.
 Personal deduction on income tax return shows a portion of real property taxes.Use personal deduction on tax return.
Other Shelter CostsFederal income tax return, Schedule C, Part II, shows business deduction of portion of shelter costs.Subtract deducted portion from vendor charges.

2. Alternate Method

If the evidence listed in the above chart is not available:

  • allocate costs according to the amount of space in the house that the business occupies;

  • get a statement, signed or on DROC, from the person who operates the business. The statement should provide sufficient information to allocate costs between the home and the business (e.g., the business operates out of one room in a seven-room house).

3. Curtailing Development

If the individual does not have the above evidence, or the evidence submitted does not sufficiently identify the item of ISM in question (e.g., it is alleged that a third party pays the gas bill and the tax return submitted does not list “gas” as a separate amount but lumps all utilities together):

  • do not attempt to convert;

  • close the issue with an RC documenting that no evidence is available and assume that the full amount is a household cost.

C. Example

Mr. Fiori, an eligible individual, lives with his ineligible spouse in a home they own. His wife operates a beauty salon in one of the rooms in the home. In December 1994, Mr. Fiori's brother pays a gas bill ($49) for them. The gas bill is for the whole house (i.e., there is no separate meter for the salon).

The FO develops to determine the converted CMV of the household gas. Schedule C from Mrs. Fiori's 1993 Federal tax return shows an annual business deduction of $85 for gas. The FO divides the $85 by 12 to get the monthly cost ($7.08) of the gas for the business. For purposes of determining outside ISM, the converted CMV of the gas used by the eligible individual's household is $41.92 ($49 minus $7.08).

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SI 00835.471 - Conversions -- Distinguishing Between Household Costs and Non-Household Costs - 09/16/2014
Batch run: 09/16/2014