How the Medicaid Spend-Down Works

The asset spend-down is the process of reducing a person’s countable assets to the Long-Term Care Medicaid limit, often $2,000 for a single applicant in 2026, by spending the excess in ways the rules allow. It is the most common path to eligibility. This guide walks through the process step by step, explains the rules that make a spend-down valid and shows how to avoid the most common mistakes.

Figures change periodically. Double-check current amounts before relying on them.

Why a spend-down is needed

Long-Term Care Medicaid is meant for people who cannot afford their care. So the state requires that countable assets be at or below a set limit before Medicaid pays. Anything above the limit is the person’s “excess resources.” Until the excess is gone, the person pays for their own care.

The spend-down is not a penalty. It is simply the way the excess is used up. The key is to use it well: on care and things the person needs, and on legal strategies that protect the family, rather than wasting it or giving it away in a way that triggers a penalty.

The ground rules

A spend-down is valid when the money is spent:

1. for the benefit of the applicant (or the spouse, for married couples), and
2. at fair market value, meaning the applicant gets something of equal value in return.

If money is given away or spent for less than fair market value, the state treats it as a transfer. Transfers within the 60-month look-back can cause a penalty period, a time when Medicaid will not pay for long-term care. See The five-year look-back.

Spending on exempt assets is especially useful, because the money is converted into something that does not count. Examples include home repairs, a car, a prepaid funeral and household goods.

Step by step

Step 1: Count everything

List every asset with its value on the first day of the month, using current statements:

• checking, savings, money market and CDs;
• stocks, bonds, mutual funds and brokerage accounts;
• IRAs, 401(k)s and other retirement accounts;
• life insurance cash values;
• real estate other than the home;
• extra vehicles;
• cash on hand.

See What counts as an asset?.

Step 2: Separate exempt from countable

Mark what does not count: the home (within the equity limit), one car, personal belongings, an irrevocable prepaid funeral, a qualifying burial fund and certain life insurance. See Exempt assets.

Step 3: Figure the excess

Excess = countable assets minus the asset limit.

For married couples, the spouse at home’s protected amount (the CSRA) is also subtracted. See The CSRA.

Step 4: Plan the spending

Make a list of what the person needs, in order of importance. Typical choices:

• care costs until eligible;
• prepaid funeral and burial, within the rules;
• home repairs and modifications;
• a reliable car, if one is needed;
• paying off debts, such as a mortgage, car loan or credit cards;
• medical and personal items: hearing aids, dentures, glasses, a wheelchair, a hospital bed, clothing;
• legal fees for planning and documents such as a power of attorney.

See Allowed and not-allowed purchases.

For married couples and others with larger estates, consider strategies such as an annuity or increasing the spouse’s allowance before spending everything. These need expert advice.

Step 5: Spend and document

Keep receipts, invoices and canceled checks for every purchase. The state will review statements and ask about large withdrawals. A simple spreadsheet listing date, amount, payee and purpose is very helpful.

Step 6: Apply at the right time

Apply in the month when countable assets are at or below the limit on the date the state checks (often the first of the month). Applying too early leads to denial. Applying late can mean lost months of coverage. See How to apply.

Step 7: Stay under the limit

After approval, assets must stay under the limit. Watch for refunds, tax refunds, insurance payouts and the build-up of unspent income.

Timing: the first-of-the-month problem

Many states test assets as of a particular point in the month, often the first day. If a person has $2,500 on the first day and spends $600 on the second, they may not be eligible until the next month. Plan big purchases so the balance is under the limit by the testing date. The state guide gives the rule where known.

A worked example: single person

Evelyn, 85, is entering a nursing home. She has:

Her state’s limit is $2,000. Her excess is $49,000.

Her family, working with a CMP, plans the spend-down:

1. Irrevocable prepaid funeral contract: $9,000. The life insurance policy is assigned to fund part of it, removing its cash value from the count.
2. Roof repair on her house: $11,000.
3. Hearing aids and dental work: $6,500.
4. New clothing and a recliner for her room: $1,500.
5. Nursing home private pay for the remaining time: about $19,000.

Within about two months, Evelyn’s countable assets are under $2,000. She applies, and Medicaid begins.

Married couples: a very different picture

For a married couple where one spouse needs care, the spend-down applies only to the amount above the spouse at home’s CSRA plus the applicant’s limit. In 2026, the CSRA is between $32,532 and $162,660 depending on the state and the couple’s assets. Spending can also benefit the spouse at home, such as repairs to the home they live in or a new car for them. See Spend-down examples.

Common mistakes

• Giving money to children or grandchildren as a “spend-down.” That is a transfer, and it can cause a penalty.
• Paying family for care without a written agreement. Payments to relatives for care can be treated as gifts unless there is a written, fair-market-value care agreement made in advance. Rules vary by state.
• Prepaying too much. Prepaying rent or care far in advance may be questioned. Buying a funeral contract that exceeds state limits can leave part of it countable.
• Not keeping receipts. Unexplained withdrawals can be treated as gifts.
• Cashing out retirement accounts without a tax plan. Withdrawals are taxable income. See Retirement accounts.
• Forgetting the spouse’s assets. For couples, both spouses’ assets count.
• Spending everything on care when other options exist. Especially for couples, there may be legal ways to protect more.

Common questions

Can I pay off my children’s debts? No. That benefits the children, not the applicant, and is a transfer.

Can I buy a house for my child to live in? Buying property in the applicant’s name is a purchase, but whether it is exempt depends on the use. Giving it to the child is a transfer. Get advice first.

Can I pay for a family trip or holiday? Reasonable spending on the applicant’s own needs and enjoyment is allowed. Paying for other people’s travel is generally a gift.

How long does a spend-down take? It depends on the amount and the plan. Paying privately for care uses up savings quickly. Planned purchases can be done in weeks.

Can I spend money on my spouse? Yes, for married couples. Transfers to a spouse are not penalized.

Spend-down and the home

For many people, the home is the largest exempt asset, and spending on it can be a sensible part of a spend-down. Repairs that keep the home in good condition, accessibility changes and paying off a mortgage all convert countable money into value in an exempt asset. Keep in mind that the home may be subject to estate recovery after death, so money put into the home may eventually be claimed by the state unless a protection applies. For a married couple, improvements to the home where the spouse lives benefit the spouse directly.

Spend-down and taxes

Some spend-down steps have tax effects:

• Selling investments can create capital gains.
• Withdrawing from an IRA or 401(k) creates ordinary income, and the tax is due the next spring. Set money aside for it, or pay estimated tax, because paying a tax bill is an allowed expense.
• Large medical expenses, including nursing home costs, may be deductible, which can offset part of the tax.

A tax professional and a CMP can work together on the timing.

Who should handle the spend-down?

Usually the applicant, or an agent acting under a durable power of attorney. If the person cannot manage their affairs and has no power of attorney, a court-appointed guardian or conservator may be needed, which takes time. Making sure a durable power of attorney is in place, with authority for Medicaid planning, is one of the most valuable steps a family can take early.

Related guides

• Allowed and not-allowed purchases
• Spend-down examples
• Exempt assets
• The five-year look-back

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.