Does Income From a Rental Property Count Against Social Security?

Officially known as the federal Old-Age, Survivors and Disability Insurance program, Social Security is in place to help U.S. citizens replace income lost due to retirement, death of a spouse (or qualifying ex-spouse), or disability. According to the U.S. Social Security Administration (SSA), nine out of 10 people age 65 and older received Social Security benefits in 2020. Additionally, such benefits represent 30% of the income of the elderly.

So, if you’re retired, disabled, or widowed, you’ll likely qualify for some form of Social Security payment. There are exceptions to this. One of the better-known ones involves working before retirement. If you’re younger than retirement age and your earnings exceed a certain dollar amount, some of the payments might be withheld.

If you’re claiming benefits before reaching full retirement age, the SSA will withhold $1 in benefits for every $2 you earn above the annual limit of $19,560. When you reach full retirement age (which is 66 and four months for those born in 1956, increasing to 67 years old in the coming years), SSA will reset those benefits, and you’ll receive some of those holdings back.

Now, the above discussion focuses on earned wages and salaries. But does rental property income count against Social Security earnings? For the most part, no. But as with many government rules and regulations, there could be exceptions.

Investment Income versus Earned Income

The SSA’s calculations concerning benefits payment focus only on employment income (or self-employed income if you work for yourself). But the following does not count against your Social security benefits:

• Rental property cash flow
• Pension fund withdrawals
• IRA/401(k)/annuity distributions
• Investment dividends
• Lawsuit payments
• Inheritances

Capital gains and other government benefit programs should also not count against your received Social Security benefits.

So, the short answer to the Social Security benefit/rental property income question is: There isn’t an impact. There is a “but,” however. Specifically, the rental income you receive from real estate doesn’t count against Social Security benefits except for the following circumstances:

• The rental income comes to you through trade or business as a real estate dealer
• You participate in the management or production of farm commodities on land rented to someone else
• You render services as a convenience for those occupying your rental property

Let’s assume that you’re not a real estate dealer or broker handling rental income and you aren’t involved with farm management or production. But the third point needs to be examined.

The SSA indicates that services “rendered primarily for the convenience of the occupant of the premises” might include:

• Room service and laundry service
• Furnishing linens and towels and making beds
• Preparing and serving meals, and washing dishes
• Sweeping and mopping floors, dusting and cleaning
• Emptying wastebaskets and picking up/replacing misplaced or scattered articles

For example, if your rental property is a bed and breakfast, and your duties as the owner include services for the occupants of that space, the rental income you earn could be counted as earnings. Same thing if you’re an Airbnb or VRBO host who handles any of the above tasks. Those earnings might be counted against your Social Security benefits.

After Full Retirement . . .

Once you reach the full retirement age of 66 years and four months and decide to apply for benefits, none of this matters. You can continue earning as much as you want without it counting against Social Security payments.

But when it comes to getting the most out of both your investment income and any Social Security benefits, be sure to talk to your financial advisor.