Disability benefits provide an important lifeline to people who are unable to work due to a variety of medical conditions. Although your ability to work while on disability is limited, you may be able to earn income from certain passive investments. Whether flipping a home while on disability will affect your benefits depends on your level of involvement in the property.
So, can you flip a house when you are on disability?
If you are actively involved in buying and selling real estate for commercial purposes (flip homes), you may be considered an active participant in investments by Social Security and risk losing your disability benefits. Because of this, you may not be able to flip your home while you have a disability.
Successfully repurposing a home requires carefully researching potential homes, visiting them to inspect their condition, assessing their income potential, and being involved in the sale of the property. Even if you hire a contractor to handle the rehabilitation project you need, their involvement in the investment may be considered work, which could hurt your profits.
A possible exception is if you have a partner who does all the work. If your only involvement in a house flip is to contribute money to invest, it can be considered passive. Disability laws are complex, so it’s important to seek the advice of a disability attorney before investing in home improvements to ensure you can continue to receive benefits. Do you have a real estate investment mentor? Get advice from him/her as well.
How do disabilities work?
Social Security Disability Insurance (SSDI) is a financial benefit for people who are unable to work because of a medical condition that prevents them from participating in certain activities. The condition must last at least a year, but may also lead to the beneficiary’s death.
SSDI is funded by payroll taxes. If you are approved for SSDI benefits, you can collect them until you return to work or reach the age to receive full Social Security retirement benefits.
When you apply for disability, the Social Security Administration (SSA) considers your medical condition, how long you have had it, the medical tests and treatments you have received, and how your disability affects your ability to work. Being recognized as disabled can be difficult. 38% of applicants are approved the first time. However, 53% of those who appeal a denial are granted.
Many people are rejected every year because they don’t meet the requirements. To qualify for SSDI, he must pass two earnings tests: a recent service test and a length of service test.
- Recent work tests: This test proves that you worked a certain amount in the past 3 to 10 years before becoming disabled. The period considered will be determined based on your age.
- Duration of working test: To qualify for SSDI benefits, you must have earned a certain number of work credits throughout your career. This is confirmed by a period test. The total number of work credits you need depends on your age.
If you receive Social Security disability benefits or are returning to work to have your benefits terminated, you may be allowed to work. You may be granted a trial period of up to nine months to see if you can work again.
The 9-month trial period does not necessarily have to be 9 consecutive months and will limit the amount you can earn. During the probationary period, you will continue to receive full benefits while working.
Earned income and passive income
Whether your income is received passively or through work is one of the most important factors in determining whether your disability benefits will be awarded.
Earned income includes any income from work. This may be the income you earn from working as an employee, or it may be income from self-employment.
Examples of earned income are:
- Salary/Wages
- chip
- Bonus
- commission
- overtime pay
- independent contractor work
- business profit
- agricultural income
Passive income includes any income you receive that is not related to your job. Many people have both earned and passive income.
Examples of passive income include:
- pension
- dividend
- interest
- royalty
Whether a job is paid or passive may require some interpretation. For example, some people may invest in a business but are not actively involved in running it. Since they are not directly involved, the money earned from these businesses is considered passive.
If you have a source of income that is open to interpretation, it may be investigated to determine whether it is earned or passive. This means it is important to retain all contracts, agreements, and other documents and communications and prove how they were obtained.
final thoughts
If you are an active participant in investing, it can be difficult to switch homes while on disability. This is a gray area. Therefore, if you are considering investing in real estate while receiving benefits, it is important to consult with a disability attorney. That’s something you don’t want to take any chances with. If flipping a home doesn’t work out for you, you may also be able to get into real estate investing using passive real estate opportunities such as real estate syndicates or his REITs. These opportunities offer many of the benefits of traditional real estate investing without the need for active participation.
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Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.