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Guide for Completing Form 8823 - page 45 / 197





45 / 197

Income from Rental Property, Partnerships, S-Corporations, and Royalties


Rental property may be real estate or personal property such as equipment or vehicles. The tenant may have income from enterprises doing business as partnerships or s- corporations, or receive royalties for copyrights or patents.

There is no limit on the amount of assets a household may hold and a household is not required to convert an asset to cash.

Assets include bank accounts, trusts, stocks and bonds, the surrender value of life insurance policies, and cash kept in safety deposit boxes or at home. One time, lump sum distributions are considered assets; e.g., inheritances, capital gains, victim’s restitution and settlements on insurance claims. Lottery winnings paid in one lump payment are treated as assets. Lottery winnings paid in periodic payments must be counted as income. Lump sum payments of deferred periodic payments of supplemental security income and social security benefits are also considered assets.

For non-cash assets held for investment, the cash value is the net amount the household would receive if the assets were converted to cash. The cash value is the market value, or the amount another person would pay to acquire the asset, less the cost to turn the asset into cash.

Assets do not include necessary personal items such as clothes, furniture, cars, wedding rings, or vehicles specially equipped for persons with disabilities. Assets used in a business are not assets included in the computation of the tenant’s income. If an asset is held in the tenant’s name, but the income generated by the asset accrues to someone who is not a member of the household and the other person is responsible for income taxes on the accrued income, then the asset is not included in the tenant’s income.

Lump-sum additions to the household’s assets, such as inheritances, insurance proceeds (including payments under health and accident insurance and worker’s compensation), capital gains, and settlements for personal or property losses are excluded from income.

Example 1: Exhausting an Asset

A tenant receives a lump sum inheritance of $12,000 and deposits the money in a savings account. The asset is disclosed and the income from the asset correctly accounted for at the time of the initial income certification. The tenant subsequently withdraws $1,000 each month to pay personal living expenses. A year later, when the annual income recertification is completed, the bank account balance is zero. The monthly withdraws retain their character of an asset; i.e., they are not considered income. There is no need to include the bank account as an asset in subsequent annual income recertifications since the balance is zero.

Assets disposed of for less than fair market value within two years of the effective date of a tenant’s initial certification or recertification, including assets placed in irrevocable trusts, are included in the tenant’s income. Assets are considered to be disposed of for less than fair market value if the cash value of the assets disposed of exceeds the gross amount the tenant received by more than $1,000.


Revised October 2009

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