C Property Essential to Self-Support

1) Business Property Example – Used in a trade or employment

The customer and her spouse have a small commercial fishing business.  They own a commercial fishing permit granted by the State Commerce Commission, a boat, and fishing tackle.  They have been in business since 2002.  The Arizona Corporation Commission records show incorporation in 2003.  The customer also provided a copy of their most recent business bank statement for proof of income.  The bank statement supports the customer’s statement that the property is currently in use.  Since this is a valid trade or business, the boat, tackle and permit are all excluded as essential to self-support.

2) Rate of Return Example - Non-business property that produces a 6% rate of return

The customer owns a mobile home that he rents out and a small vacant lot that he rents out for event parking.  The mobile home has an equity value of $6,100 and produces net annual rental income of $1,000.  The vacant lot has an equity value of $4,000 and produces net annual rental income of $120.  Each property’s rate of return is calculated separately, as shown below:

Mobile Home - Net annual income of $1,000 divided by $6,100 = 16.3% rate of return.  Since the mobile home produces more than a six percent return, $6,000 of its equity value is excluded.  The remaining $100 is counted.

Vacant Lot – Net annual income of $120 divided by $4,000 = 3% rate of return.  Since the vacant lot produces less than a six percent return, its equity value of $4,000 is counted.

3) Rate of Return Example - Non-business property that produces a 6% rate of return

The customer owns an apartment complex with multiple units on the same property. The customer does not actively manage or maintain the property. The apartment complex has a property value of $200,000.

The customer receives $30,000 per year from the apartments. The customer has the following expenses related to the apartment: $2,500 a year in property taxes, and $2,500 a year for insurance.

After expenses are accounted for, the customer’s net income from the apartments is $25,000.  Net annual income of $25,000 divided by $200,000 = 12.5% rate of return. The equity value of the property is reduced by $6,000.

4) Rate of Return Example- Non-business property that produces a 6% rate of return

Customer owns property with an equity value of $75,000. The customer has an outstanding agreement with a mining company that they may use the property for mining purposes. This mining company pays the customer $6,000 per year.  Net annual income of $6,000 divided by $75,000 = 8% rate of return. This property’s equity value is reduced by $6,000.

5) Property that produces goods or services for the customer’s needs

A farmer has a 4-acre lot 5 miles from his house.  He raises 3 cows and a garden every year.  He sells two of the cows for $700 each and butchers the remaining cow for personal use.  He sells the vegetables once he fills his personal freezers.  He makes $1,200 from selling vegetables. The earnings are reviewed as self-employment income. Since this property is used to produce goods or services for the daily needs of the customer, $6,000 is deducted from the equity value of the property.