Owning a Business
Small business owners, farmers and self-employed people often worry that Long-Term Care Medicaid will force them to sell the business. Usually it will not. Under the SSI rules most states follow, property used in a trade or business is excluded from the asset count regardless of value, as long as the business is operating. But the details matter, especially when the owner enters long-term care and can no longer run the business. This guide explains how business assets are treated and how to plan.
Figures change periodically. Double-check current amounts before relying on them.
The basic rule
Property essential to self-support that is used in a trade or business is excluded from resources, with no dollar limit, while it is in current use in the business. This includes:
- real estate used in the business, such as a shop, office, farm or warehouse;
- equipment, machinery, vehicles and tools;
- inventory and supplies;
- livestock and crops on a working farm;
- business bank accounts used for operating the business, such as for payroll and supplies.
See Self-support property for the broader rules.
What is a “trade or business”?
Generally, an activity carried on regularly with the aim of making a profit. Signs include:
- reporting business income and expenses on tax returns (for example, Schedule C, Schedule F or a partnership or corporate return);
- a business license, registration or employer identification number;
- regular sales, customers or clients;
- business records and a separate bank account.
A hobby or an occasional sale is usually not a trade or business.
Ownership forms
How the business is owned affects how it is counted:
| Form | How it is usually treated |
|---|---|
| Sole proprietorship | Business property is the owner’s property; excluded while used in the business |
| Partnership or LLC interest | The owner’s interest may be excluded if the owner is active in the business; otherwise the interest may count at its value |
| Corporation (stock) | Stock is generally a countable asset unless the person’s involvement makes it part of their trade or business, depending on state rules |
| Farm | Excluded while operated as a farm business |
States differ on closely held corporations and LLCs. Get advice for anything other than a simple sole proprietorship.
When the owner enters long-term care
This is where most problems arise. The exclusion depends on the property being currently used in a trade or business. When the owner enters a nursing home:
- If the business continues, run by a spouse, family member or employee on the owner’s behalf, it may remain excluded. Document that it is still operating: sales, payroll, tax filings.
- If the business closes, the property may become countable. Business real estate may count at its equity value, and equipment and inventory at what they could be sold for.
- If the business is sold, the proceeds are countable.
- Temporary non-use: under SSI rules, property not in current use can remain excluded for a limited time (often up to 12 months) if there is a reasonable expectation that use will resume. State Medicaid practice varies.
Business income
The business’s net earnings count as income for eligibility and, after approval, toward the patient liability. See Business and self-employment income.
Married couples
For a married couple, a business owned by either spouse can be excluded under the same rules. When the spouse at home continues to run the business, the exclusion usually continues, which can protect a family’s livelihood. Because the business is excluded, it does not reduce what the spouse at home can keep under the CSRA.
A worked example
Rosa and Luis own a small bakery as a sole proprietorship. Luis, 79, develops dementia and enters a nursing home. Rosa, 74, keeps the bakery open with two employees.
| Asset | Treatment |
|---|---|
| Bakery building (equity $250,000) | Excluded, used in the business |
| Ovens, mixers, delivery van | Excluded |
| Business checking ($18,000 for payroll and supplies) | Excluded as an operating account, in most states |
| Personal savings ($120,000) | Countable |
| Home and personal car | Exempt |
Rosa’s CSRA is figured from the personal savings only. The bakery is protected while it operates. If Rosa later closes the bakery, the building and equipment may become countable, and she should get advice before closing or selling.
Planning ideas
- Keep the business running if possible, with clear records.
- Separate business and personal accounts. Mixed accounts are hard to exclude.
- Document the owner’s role and any successor’s role.
- Consider succession planning. Selling the business to a family member at fair market value is a sale, not a gift. Selling below value is a transfer. Giving the business away within the look-back causes a penalty unless an exemption applies.
- Transfers to a spouse are not penalized.
- Think about estate recovery. An excluded business can still be part of the estate after death, though many states offer hardship waivers for a family business that is the heirs’ main source of income. See Estate recovery.
Common questions
Do I have to sell my business to qualify? Not if it is a real, operating business. Business property is excluded regardless of value.
What if my business is losing money? It can still be excluded if it is an ongoing trade or business.
Is my rental property a business? Sometimes. See Owning rental property.
What about my business retirement plan? Retirement accounts are treated under separate rules. See Retirement accounts.
What if I own stock in a large public company? That is an investment, not a trade or business. It counts.
Records to gather
- business tax returns for recent years;
- business licenses and registrations;
- business bank statements;
- asset lists, with values;
- partnership or operating agreements, or corporate documents;
- proof of continued operation after the owner enters care.
Getting advice
Business owners have more to protect and more ways to make costly mistakes. A Certified Medicaid Planner (CMP), working with the business’s accountant and attorney, can plan for both Medicaid and the business’s future.
Valuing business assets that count
When business property becomes countable, for example after the business closes, the state needs a value. Expect to provide:
- Real estate: a recent appraisal or a broker’s opinion of value, minus mortgages and liens.
- Equipment and vehicles: what they could be sold for now, not what they cost. Used-equipment dealer quotes or auction estimates help.
- Inventory: what it could be sold for, which may be well below retail.
- An ownership interest in a partnership, LLC or closely held corporation: often the hardest. A business valuation may be needed. Discounts for lack of control or marketability may be argued, but states vary in accepting them.
Low but honest values help. Inflated values hurt. Values that are too low invite questions, especially if the asset is later sold to family.
Selling the business
If the owner sells the business:
- At fair market value to anyone, including family: no penalty, but the proceeds count.
- For less than fair market value: the shortfall is treated as a gift subject to the look-back.
- On installment terms: the note may itself be a countable asset or produce countable income. Notes must meet strict federal rules to avoid being treated as a transfer: payable in equal amounts, actuarially sound, and with no cancellation at death.
Timing matters. Selling before or after the application, and what is done with the proceeds, should be planned together.
Closing the business
If no one can continue the business, plan the wind-down:
- Pay business debts first. Paying legitimate debts is not a transfer.
- Decide which assets can be sold, and at what price.
- Consider whether any property can be converted to an exempt use or transferred to a spouse.
- Keep records of every sale and payment.
Closing a business without a plan can turn excluded property into a countable lump sum overnight.
Business debts and personal guarantees
Many small business owners have personally guaranteed loans. If the business is sold or closed, these debts may need to be paid from personal funds. Paying a genuine debt reduces countable assets without a penalty, but the state will want proof that the debt was real and owed to a third party.
Agricultural property
Farms raise special issues: crop and livestock values change by season, land is often held in family partnerships, and a family member may farm the land under an informal arrangement. Put any lease or operating arrangement in writing, at a fair rent, so the state can see whether the land is used in a business or is nonbusiness rental property.
Related guides
- Self-support property
- Business and self-employment income
- Owning rental property
- What counts as an asset?
Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.