Income received from rental property owned by a client is earned income if the money is produced by the client's services. For example, the client managing the property or managing the capital investment qualifies rental income as earned. If the client has no specific responsibility for management of the property or the investment, the rental does not qualify as earned income. For example, when a rental agency or trustee handles all of the management duties relating to the property and sends the money to the client, the rental income is unearned.
Subtract reasonable and necessary rental expenses from gross rental income and any allowable earned income deductions (see PM 08-01-02).