Mom's Rental Duplex: Asset, Income, or Both for Florida Medicaid?

Phyllis's Duplex: One Property, Two Different Medicaid Questions

Phyllis is 83 and lives in Daytona Beach. She is a composite I've built from patterns I see often in my practice, not an actual client, but her situation is a common one. Her late husband bought a duplex in 1988. Phyllis lives in one side and rents the other, and between that $1,600 a month in rent and her Social Security check, she has gotten by comfortably for years. Now her family is starting to think about nursing home care, and someone has told them the duplex will disqualify her from Medicaid. Someone else has told them the rent will disqualify her. They are both right, and both wrong, because a rental property actually raises two separate Medicaid questions that get answered differently.

The first question is whether the duplex itself counts as an asset against Florida's very low resource limit. The second is whether the monthly rent counts as income against Florida's income cap. A property can pass the asset test and still cause a problem on the income side, or the reverse. Phyllis's family needed to look at both halves before deciding what to do.

Is the Duplex a Countable Asset? The Income-Producing Property Exception

Florida Medicaid generally treats income-producing real estate differently than it treats a vacant lot or a second home sitting empty. Under Florida's Medicaid policy rules, rental property that is actually rented to someone else at a rate consistent with community standards can be treated as a non-countable asset, regardless of its value, as long as it produces a reasonable return relative to its fair market value.

That is a meaningful exception. Florida's countable asset limit for an individual Medicaid long-term care applicant is extremely low, so an asset that would otherwise have to be spent down can sometimes stay in the family if it is legitimately income-producing rental property. The key requirements caseworkers look at are:

• The property is actually rented out to someone else, not just held vacant hoping to rent it someday.
• The rent charged reflects fair market value for the area. Charging a relative a token amount will not qualify.
• The rental arrangement generates a reasonable annual return given what the property is worth.

For Phyllis, the rented half of her duplex, charging $1,600 a month at what her family confirmed was a fair local rate, fit this exception. That side of the property did not have to be counted against her asset limit. But qualifying as an exempt asset does not make the rent itself disappear from the Medicaid math. That income still has to be dealt with separately.

Rent as Income: The Cap, the Deductions, and the Qualified Income Trust

Florida is an income-cap state for long-term care Medicaid. Once an applicant's gross monthly income crosses a set threshold, adjusted periodically and set at $2,982 per month in 2026, the applicant cannot simply spend down into eligibility the way asset-only cases work. Rental income counts toward that gross income figure, but not necessarily dollar for dollar.

Florida Medicaid allows certain deductions from gross rental income before it is counted, including ordinary and necessary expenses of maintaining the property (things like taxes, insurance, and repairs) and an allowance of up to 10% of rental income as a property-management fee, even if a family member is managing the property informally rather than paying an outside company. This is where the math on Phyllis's $1,600 in rent gets more favorable than it first appears.

Estate Recovery and the Homestead Trap Hiding in the Duplex

Here is where a rental duplex gets more complicated than a straightforward homestead. Florida's constitutional homestead protection generally shields a primary residence from Medicaid estate recovery after death, under Article X, Section 4 of the Florida Constitution. But that protection is tied to the property genuinely being used as a homestead.

A duplex where the owner lives in one unit and rents out the other sits in a gray area. The side Phyllis lives in retains its homestead character. The rented side, generating income for a third party rather than serving as her residence, may not enjoy the same constitutional shield. That means after Phyllis's death, Florida's Medicaid Estate Recovery Program, authorized under Florida law implementing the federal Omnibus Budget Reconciliation Act of 1993, could potentially seek recovery against the value attributable to the non-homestead, rental portion of the property through her probate estate.

Four Paths Phyllis's Family Weighed

Once the family understood both halves of the picture, asset treatment and income treatment, they sat down and walked through four realistic options for the duplex.

• Sell the duplex. This converts the property into cash, which is a countable asset unless spent down or otherwise protected, and can trigger capital gains tax on the appreciation since 1988, though a portion of gain on a primary residence may be excludable under federal tax rules. Selling also ends the family's connection to a home with sentimental history, and it eliminates the rental income Phyllis relies on.
• Keep it as exempt income-producing property. This preserves the asset exemption and keeps the rental income flowing, but requires ongoing attention to Florida's fair-rent and reasonable-return standards, careful income accounting for the Medicaid cap, and clear-eyed acceptance of the estate recovery exposure on the rented portion.
• Transfer the duplex to family now. An outright gift or below-market transfer within five years of a Medicaid application triggers Florida's look-back penalty, a period of ineligibility calculated based on the value transferred. For a property with real value, this can mean a lengthy period where Medicaid will not pay for care.
• Use an irrevocable trust. Placing the duplex into a properly drafted irrevocable trust well outside the five-year look-back window can remove it from Phyllis's countable estate for Medicaid purposes and address estate recovery, but it requires giving up direct ownership and control, and it only works if done far enough in advance of needing care.

Each of these paths has different tax consequences, timing requirements, and tradeoffs for a family's other goals, like keeping property in the family or preserving cash flow. There is no single right answer, only the answer that fits a particular family's timeline and priorities.

Sources

• Elder Needs Law, "Rental Real Estate: Income-Producing Property and Medicaid," July 5, 2026
• Alper Law, "Homestead and Medicaid," April 21, 2026
• Zoecklein Law PA, "Florida Medicaid Income Limits 2026," June 10, 2026
• ElderCare Resource Planning, "Eligibility: Rental Property Impact," February 10, 2025
• BBE Elder Law, "Qualified Income Trust in Florida," September 30, 2025
• Elder Needs Law, "Miller Trusts / Qualified Income Trusts in Florida"
• Elder Needs Law, "Medicaid Estate Recovery"
• BBE Elder Law, "Can Medicaid Take Your House?," February 25, 2026
• Florida Medicaid Estate Recovery Program (Official)
• Nolo, "Florida Medicaid Estate Recovery Program," December 12, 2024

This article is for general informational purposes only and does not constitute legal advice, nor does reading it create an attorney-client relationship. Florida estate, elder, probate, and real estate law are fact-specific and change over time. Consult a licensed Florida attorney about your individual circumstances. Arthur Simpson, Esq. is licensed to practice law in the State of Florida. Attorney advertising.