SI SF01210.514 Determining Net Income

A. Income from Property

Determine net income from property by deducting from gross income all normal items of expense involved in its receipt. Principal payments on encumbrances are not considered necessary items of expense. If property is sold, the interest portion of any payment received is income. Specific instructions for particular types of income from property follow.

1. Rental Income from Real Property (including a life estate)

Derive net rental income by deducting the following items from the gross:

  • taxes and assessments

  • interest, but not principal, portion of mortgage payments

  • insurance

  • utilities

  • upkeep and major repairs – deduct either actual amount spent each month or 15% of the gross rental plus $4.17 per month

Prorate the above expenses on the same periodic basis as the periodic basis on which rental income is received (e.g., quarterly, monthly). Multiply rental income received weekly by 4 1/3 to convert to a monthly amount.

NOTE: Under the ordinary life estate agreement, the life tenant is entitled to the use and/or income from the property. He or she is also responsible for the usual costs of ownership such as taxes and upkeep. However, if the life estate agreement stipulates that the person to whom the life estate will revert is responsible for certain expenses, such expense payments are not income to the life tenant.

2. Rental of Rooms

Derive net rental income by deducting the following items from the gross:

  • portion of rent or ownership costs allocable to room(s) occupied by roomers

  • extra utilities

  • laundry

  • replacement of linen and equipment

3. Rental of Trucks, Equipment, Etc.

Deduct expenses for maintenance, etc., from gross rental income.

4. Sale of Real Property Under Contract of Sale (Title Not Passing)

The interest received from this type of sale is net income. The principal payments are conversion of real property to personal property. Deduct any interest payments on prior encumbrances in determining net income from interest received. When the property is sold is a home, see SI SF01210.512K for an exception.

5. Sale of Crops

Determine net income by deducting the following expenses from gross income:

  • taxes and assessment

  • interest on encumbrance payments (do not deduct principal payments)

  • water costs

  • necessary repair and minor replacement of buildings and equipment

  • fertilizer, seed, insecticides, pruning, cultivation, and harvesting costs

  • rental of equipment

  • wages

  • losses on crops from the previous period

  • other necessary expenses

Prorate annual expenses according to the interval at which the gross income was received. If expenses cannot be identified with a particular period, allocate the expenses as closely as possible to the applicable period of crop income. Ensure that all expenses are deducted from gross income on a continuing basis.

6. Sale of Livestock

Proceeds from the sale of the increase of livestock (i.e., that portion which represents a capital gain) are gross income. Proceeds from the sale of an entire holding of livestock are not income, but conversion of property (resource).

Deduct expenses of raising the livestock (e.g., feed, pasture rent, prorated personal property tax) to determine the net income. When this type of income is received at intervals of more than one month, prorate the expenses as described in 5. above.

B. Net Income from OASDI, RRB, and Other Pensions

Net income from OASDI (title II) and RRB (Railroad Board) is the actual amount paid. Net income from other pensions is usually the gross amount. However, if the recipient must pay income tax on the income or incurs required expenses in receiving the income, deduct those amounts to determine net income.

C. Net Income from Room and Board

Deduct the following expenses from the gross to determine the net income for room and board:

  • food

  • costs allocable to the boarder’s room (share of rent or mortgage, etc.)

  • extra utilities

  • laundry

  • replacement of linen and equipment

D. Net Income from the Earnings of a Recipient

1. Received an as employee (wages, salary, commission)

  • determine gross income (prior to deductions)

  • deduct exempt income (see SI SF01201.518 )

  • deduct personal and non-personal work expenses (see 4. below)

  • remainder is nonexempt income

2. Received in Self-Employment or in Combination with Earnings as an Employee

  • determine gross income

  • deduct business work expenses (see 4. below)

  • deduct exempt income (see SI SF01201.518)

  • deduct personal and non-personal work expenses (see 4. below)

  • remainder is nonexempt income

If the income is received other than monthly, first convert the income and expenses to a monthly average amount, then apply the steps above.

3. In-Kind Earnings

Determine the monetary value by using the values provided under SI SF01210.512J if a need item is met in kind as a result of service performed. Then determine net income using the steps in 1. or 2. above, as appropriate.

4. Work-Related Expenses

Work-related expenses are divided into three categories that are allowable, subject to the limitations stated, unless reimbursed by the employer.

a. Personal Expenses

  1. 1) 

    minimum amounts involuntarily withheld for income tax, social security, compulsory retirement, unemployment, and disability insurance

  2. 2) 

    reasonable and necessary costs of child care

  3. 3) 

    additional food, clothing, and incidentals required solely for employment to the extent the costs are reasonable and necessary

  4. 4) 

    transportation

    • recipient’s own vehicle – 12 cents per mile less contributions of riders (if rider contributions exceed 12 cents per mile, the excess is not nonexempt income)

    • someone else’s vehicle – the amount the recipient contributes, not to exceed 6 cents per mile

The amounts allowed above may not exceed cost of public transportation if it is available.

b. Nonpersonal Expenses

  1. 1) 

    cost of transportation to call on customers

  2. 2) 

    reasonable and necessary costs of tools, materials, and licenses required for employment

  3. 3) 

    reasonable and necessary union or employee association dues required for employment

c. Business Expenses

These are reasonable and necessary expenses incurred in the production of income by a self-employed person. They include interest payments, but not principal payments.


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SI SF01210.514 - Determining Net Income - 01/29/2018
Batch run: 01/29/2018
Rev:01/29/2018