**§3.262 Evaluation of income.**

\(a\) *Total income*. All income from sources such as wages, salaries,
earnings, bonuses from employers, income from a business or profession
or from investments or rents as well as the fair value of personal
services, goods or room and board received in lieu thereof will be
included.

\(1\) Salary is not determined by "takehome" pay, but includes
deductions made under a retirement act or plan and amounts withheld by
virtue of income tax laws.

\(2\) The gross income from a business or profession may be reduced by
the necessary operating expenses, such as cost of goods sold, or
expenditures for rent, taxes, and upkeep. Depreciation is not a
deductible expense. The cost of repairs or replacement may be deducted.
The value of an increase in stock inventory of a business is not
considered income.

\(3\) A loss sustained in operating a business, profession, or farm or
from investments may not be deducted from income derived from any other
source.

\(b\) *Income of spouse*. Income of the spouse will be determined under
the rules applicable to income of the claimant.

\(1\) *Parents*. Where the mother and father or remarried parent and
spouse are living together, the total combined income will be considered
in determining dependency, or in determining the rate of dependency and
indemnity compensation payable to the parent. This rule is equally
applicable where both parents have remarried and each is living with his
or her spouse. If the remarriage of a parent has been terminated, or the
parent is separated from his or her spouse, income of the spouse will be
excluded.

\(2\) *Veterans*. The separate income of the spouse of a disabled
veteran who is entitled to pension under laws in effect on June 30,
1960, will not be considered. Where pension is payable under section
306(a) of Pub. L. 95-588, to a veteran who is living with a spouse there
will be included as income of the veteran all income of the spouse in
excess of whichever is the greater, the amount of the spouse income
exclusion specified in section 306(a)(2)(B) of Pub. L. 95-588 as
increased from time to time under section 306(a)(3) of Pub. L. 95-588 or
the total earned income of the spouse which is reasonably available to
or for the veteran, unless hardship to the veteran would result. Each
time there is an increase in the spouse income exclusion pursuant to
section 306(a)(3) of Pub. L. 95-588, the actual amount of the exclusion
will be published in the "Notices" section of the *Federal Register*.
The presumption that inclusion of such income is available to the
veteran and would not work a hardship on him or her may be rebutted by
evidence of unavailability or of expenses beyond the usual family
requirements. (Authority: 38 U.S.C. 1521(f); sec. 306(a)(2)(B) of Pub.
L. 95-588)

\(c\) *Maintenance*. The value of maintenance furnished by a relative,
friend, or a charitable organization (civic or governmental) will not be
considered income. Where the claimant is maintained in a rest home or
other community institution or facility, public or private, because of
impaired health or advanced age, money paid to the home or to the
claimant to cover the cost of maintenance will not be considered income,
regardless of whether it is furnished by a relative, friend or
charitable organization. The expense of maintenance is not deductible if
it is paid from the claimant's income, except as provided in paragraph
(1) of this section in claims for dependency and indemnity compensation.

\(d\) *Charitable donations*. Charitable donations from public or
private relief or welfare organizations will not be considered income
except in claims for pension under laws in effect on June 30, 1960. In
the latter cases, additional charitable allowances received by a
claimant for members of his or her family may not be divided per capita
in determining the amount of the claimant's income.

\(e\) *Retirement benefits; general*. Retirement benefits, including an
annuity or endowment, paid under a Federal, State, municipal, or private
business or industrial plan are considered income as limited by this
paragraph. Where the payments received consist of part principal and
part interest, interest will not be counted separately.

\(1\) *Protected pension*. Except as provided in this paragraph (e)(1),
effective January 1, 1965, in determining income for pension purposes
under laws in effect on June 30, 1960, 10 percent of the retirement
payments received by a veteran, surviving spouse, or child will be
excluded. The remaining 90 percent will be considered income as
received. Where the retirement benefit is based on the claimant's own
employment, payments will not be considered income until the amount of
the claimant's personal contribution (as distinguished from amounts
contributed by the employer) has been received. Thereafter the 10
percent exclusion will apply.

\(2\) *Pension; Pub. L. 86-211*. Except as provided in this
subparagraph, effective January 1, 1965, in determining income for
pension purposes, under Pub. L. 86-211 (73 Stat. 432), 10 percent of the
retirement payments received by a veteran, the veteran's spouse,
surviving spouse, or child will be excluded. The remaining 90 percent
will be considered income as received. Where a person was receiving or
entitled to receive pension and retirement benefits based on his or her
own employment on December 31, 1964, the retirement payments will not be
considered income until the amount of the claimant personal contribution
(as distinguished from amounts contributed by the employer) has been
received. Thereafter the 10 percent exclusion will apply.

\(3\) *Compensation*. In determining dependency of a parent for
compensation purposes, all payments will be considered income as
received.

\(4\) *Dependency and indemnity compensation*. Except as provided in
this subparagraph, effective January 1, 1967, in determining income for
dependency and indemnity compensation purposes, 10 percent of the
retirement payments received by a deceased veteran's parent or by the
parent's spouse will be excluded. The remaining 90 percent will be
considered income as received. Where a parent was receiving or entitled
to receive dependency and indemnity compensation and retirement benefits
based on his or her own employment on December 31, 1966, the retirement
payments will not be considered income until the amount of the
claimant's personal contribution (as distinguished from amounts
contributed by the employer) has been received. Thereafter the 10
percent exclusion will apply. (Authority: 38 U.S.C. 1315(g), 1503(a)(6))

\(f\) *Social Security benefits*. Old age and survivor's insurance and
disability insurance under title II of the Social Security Act will be
considered income as a retirement benefit under the rules contained in
paragraph (e) of this section. Benefits received under noncontributory
programs, such as old age assistance, aid to dependent children, and
supplemental security income are subject to the rules contained in
paragraph (d) of this section applicable to charitable donations. The
lumpsum death payment under title II of the Social Security Act will be
considered as income except in claims for dependency and indemnity
compensation and for pension under Pub. L. 86-211 (73 Stat. 432).

\(g\) *Railroad retirement benefits*:

\(1\) *Parents, surviving spouses and children*. Retirement benefits
received from the Railroad Retirement Board will be considered as income
under the rules contained in paragraph (e) of this section. (See
paragraph (h) of this section as to waivers.)

\(2\) *Veterans*. Effective July 1, 1959, retirement benefits received
from the Railroad Retirement Board were excluded from consideration as
income in determining eligibility for disability pension. (45 U.S.C.
228s-1) This exclusion continues to be applicable to claims under laws
in effect on June 30, 1960. For purposes of section 306 pension, such
retirement benefits will be considered as income under the rules
contained in paragraph (e) of this section.

\(h\) *Retirement benefits waived*. Except as provided in this
paragraph, retirement benefits (pension or retirement payments) which
have been waived will be included as income. For the purpose of
determining dependency of a parent, or eligibility of a parent for
dependency and indemnity compensation or eligibility of a veteran,
surviving spouse, or child for pension under laws in effect on June 30,
1960, retirement benefits from the following sources which have been
waived pursuant to Federal statute will not be considered as income:

\(1\) Civil Service Retirement and Disability Fund;

\(2\) Railroad Retirement Board (see paragraph (g)(2) of this section);

\(3\) District of Columbia, firemen, policemen, or public school
teachers;

\(4\) Former lighthouse service.

\(i\) *Compensation (civilian) for injury or death*.

\(1\) Compensation paid by the Bureau of Employees' Compensation,
Department of Labor (of the United States), or by Social Security
Administration, or by Railroad Retirement Board, or pursuant to any
workmen's compensation or employer's liability statute, or damages
collected because of personal injury or death, less medical, legal, or
other expenses incident to the injury or death, or the collection or
recovery of such moneys will be considered income as received, except as
provided in paragraph (i)(2) of this section. The criteria of paragraph
(i)(1) of this section are for application as to all medical
expenditures after such award or settlement. (Authority: Pub. L. 92-198,
85 Stat. 663)

\(2\) For pension, effective October 7, 1966, and for dependency and
indemnity compensation effective January 1, 1967, if payments based on
permanent and total disability or death are received from the Bureau of
Employees' Compensation, Social Security Administration or Railroad
Retirement Board, or pursuant to any workmen's compensation or
employer's liability statute, there will be excluded 10 percent of the
payments received after deduction of medical, legal, and other expenses
as authorized by paragraph (i)(1) of this section. The 10 percent
exclusion does not apply to damages collected incident to a tort suit
under other than an employer's liability law of the United States or a
political subdivision of the United States, or to determinations of
dependency for compensation purposes.

\(j\) *Commercial insurance*:

\(1\) *Annuity or endowment insurance*. For pension, effective January
1, 1965, or for dependency and indemnity compensation, effective January
1, 1967, the provisions of paragraph (e) of this section apply. In such
cases, 10 percent of the payments received will be excluded. In
dependency and indemnity compensation claims, where the parent is
receiving or entitled to receive dependency and indemnity compensation
on December 31, 1966, and is also receiving or entitled to receive
annuity payments on that date, or endowment insurance matures on or
before that date, no part of the payments received will be considered
income until the full amount of the consideration has been received,
after which 10 percent of the amount received will be excluded. For
compensation, the full amount of each payment is considered income as
received.

\(2\) *Life insurance; general*. In determining dependency, or
eligibility for dependency and indemnity compensation, or for section
306 pension, the full amount of payments is considered income as
received. For section 306 pension, effective October 7, 1966, and for
dependency and indemnity compensation, effective January 1, 1967, 10
percent of the payments received will be excluded.

\(3\) *Life insurance; old-law pension*. For pension under laws in
effect on June 30, 1960, 10 percent of the payments received will be
excluded. Where it is considered that life insurance was received in a
lump sum in the calendar year in which the veteran died and payments are
actually received in succeeding years, no part of the payments received
in succeeding years will be considered income until an amount equal to
the lump-sum face value of the policy has been received, after which 10
percent of the payments received will be excluded. The 10 percent
exclusion is authorized effective October 7, 1966.

\(4\) *Disability, accident or health insurance*. For pension, effective
October 7, 1966, and for dependency and indemnity compensation,
effective January 1, 1967, there will be excluded 10 percent of the
payments received for disability after deduction of medical, legal, or
other expenses incident to the disability. For compensation, after
deduction of such expenses, the full amount of payments is considered
income as received.

\(k\) *Property*:

\(1\) *Ownership*. The terms of the recorded deed or other evidence of
title will constitute evidence of ownership of real or personal
property. This includes property acquired through purchase, bequest or
inheritance except that, effective January 1, 1971, amounts in joint
accounts in banks and similar institutions acquired by reason of the
death of another joint owner shall not be considered income of a
survivor for section 306 pension purposes. With the foregoing exception,
if property is owned jointly each person will be considered as owning a
proportionate share. The claimant's share of property held in
partnership will be determined on the facts found. In the absence of
evidence to the contrary, the claimant's statement as to the terms of
ownership will be accepted. (Authority: Sec. 306, Public Law 95-588; 92
Stat. 2508)

\(2\) *Income-producing property*. Income received from real or personal
property owned by the claimant will be counted. The claimant's share
will be determined in proportion to his right according to the rules of
ownership.

\(3\) *Sale of property*. Except as provided in paragraphs (k)(4) and
(5) of this section, net profit from the sale of real or personal
property will be counted. In determining net profit from the sale of
property owned prior to the date of entitlement, the value at the date
of entitlement will be considered in relation to the selling price.
Where payments are received in installments, payments will not be
considered income until the claimant has received amounts equal to the
value of the property at the date of entitlement. Principal and interest
will not be counted separately.

\(4\) *Homes*. Net profit from the sale of the claimant's residence
which is received during the calendar year of sale will not be
considered as income under the following conditions:

\(i\) To the extent that it is applied within the calendar year of the
sale, or the succeeding calendar year, to the purchase price of another
residence as his principal dwelling;

\(ii\) Such application of the net profit is reported within 1 year
following the date so applied, and

\(iii\) The net profit is so applied after January 10, 1962, to a
purchase made after said date.

This exclusion will not apply where the net profit is applied to the
price of a home purchased earlier than the calendar year preceding the
calendar year of sale of the old residence.

\(5\) *Sale of property; section 306 pension* *and dependency and
indemnity compensation*. For pension under section 306 pension and for
dependency and indemnity compensation, profit from the sale of real or
personal property other than in the course of a business will not be
considered income. This applies to property acquired either before or
after the date of entitlement. Any amounts received in excess of the
sales price will be counted as income. Where payments are received in
installments, principal and interest will not be counted separately. For
pension, this provision is effective January 1, 1965; for dependency and
indemnity compensation, January 1, 1967. (Authority: 38 U.S.C.
1503(a)(10): 38 U.S.C. 1315(g))

\(6\) *Payments on mortgages on real property; section 306 pension*.
Effective January 1, 1971, for the purposes of section 306 pension, an
amount equaling any prepayments made by a veteran or surviving spouse on
a mortgage or similar type security instrument in existence at the death
of veteran or spouse on real property which prior to the death was the
principal residence of the veteran and spouse will be excluded from
consideration as income if such payment was made after the death and
prior to the close of the year succeeding the year of death. (Authority:
38 U.S.C. 1503(a)(14))

\(l\) *Unusual medical expenses*. Within the provisions of paragraphs
(l)(1) through (4) of this section there will be excluded from the
amount of the claimant's annual income any unreimbursed amounts which
have been paid within the calendar year for unusual medical expenses
regardless of the year the indebtedness was incurred. The term "unusual"
means "excessive." It does not describe the nature of a medical
condition but rather the amount expended for medical treatment in
relationship to the claimant's resources available for sustaining a
reasonable mode of life. Unreimbursed expenditures which exceed 5
percent of the claimant's reported annual income will be considered
unusual. Health, accident, sickness and hospitalization insurance
premiums will be included as medical expenses in determining whether the
claimant's unreimbursed medical expenses meet the criterion for
"unusual." A claimant's statement as to amounts expended for medical
expenses ordinarily will be accepted unless the circumstances create
doubt as to its credibility. An estimate based on a clear and reasonable
expectation that unusual medical expenditure will be realized may be
accepted for the purpose of authorizing prospective payments of benefits
subject to necessary adjustment in the award upon receipt of an amended
estimate or after the end of the calendar year upon receipt of an income
questionnaire.

\(1\) *Veterans*. For the purpose of section 306 pension, there will be
excluded unreimbursed amounts paid by the veteran for unusual medical
expenses of self, spouse, and other relatives of the veteran in the
ascending as well as descending class who are members or constructive
members of the veteran's household and whom the veteran has a moral or
legal obligation to support.

\(2\) *Surviving spouses*. For the purpose of section 306 pension, there
will be excluded unreimbursed amounts paid by the surviving spouse for
the unusual medical expenses of self, the veteran's children, and other
relatives of the surviving spouse in the ascending as well as descending
class who are members or constructive members of the surviving spouse's
household and whom the surviving spouse has a moral or legal obligation
to support.

\(3\) *Children*. For the purpose of section 306 pension, there will be
excluded unreimbursed amounts paid by a child for the unusual medical
expenses of self, parent, and brothers and sisters of the child.

\(4\) *Parents*. For dependency and indemnity compensation purposes
there will be excluded unreimbursed amounts paid by the parent for the
unusual medical expenses of self, spouse, and other relatives of the
parent in the ascending as well as descending class who are members or
constructive members of the parent's household and whom the parent has a
moral or legal obligation to support. If the combined annual income of
the parent and the parent's spouse is the basis for dependency and
indemnity compensation, the exclusion is applicable to the combined
annual income and extends to the unusual unreimbursed medical expenses
of the spouse's relatives in the ascending as well as descending class
who are members or constructive members of the household and whom the
parent's spouse has a moral or legal obligation to support. (Authority:
38 U.S.C. 1315(f)(3); Sec. 306, Pub. L. 95-588; 92 Stat. 2508)

\(m\) *Veteran's final expenses; pension*. In claims for pension under
section 306, there will be excluded, as provided in paragraph (p) of
this section:

\(1\) From the income of a surviving spouse, amounts equal to amounts
paid for the expenses of the veteran's last illness;

\(2\) From the income of a surviving spouse, or of a child of a deceased
veteran where there is no surviving spouse, amounts equal to amounts
paid by the surviving spouse or child for the veteran's just debts, the
veteran's last illness, and the veteran's burial to the extent such
expenses are not reimbursed by the Department of Veterans Affairs. The
term "just debts" does not include any debt that is secured by real or
personal property. (Authority: Sec. 306, Pub. L. 95-588; 92 Stat. 2508)

\(n\) *Final expenses of veteran's spouse or child; pension*. In claims
for pension under section 306, there will be excluded, as provided in
paragraph (p) of this section:

\(1\) From the income of a veteran. amounts equal to amounts paid by the
veteran for the last illness and burial of the veteran's deceased spouse
or child; and

\(2\) From the income of a spouse or surviving spouse, amounts equal to
amounts paid by the spouse or surviving spouse of the deceased veteran
for the last illness and burial of a child of such veteran. (Authority:
Sec. 306, Pub. L. 95-588; 92 Stat. 2508)

\(o\) *Final expenses of veteran or parent's spouse; dependency and
indemnity compensation*. In claims for dependency and indemnity
compensation there will be excluded from the income of a parent, as
provided in paragraph (p) of this section, amounts equal to amounts paid
by the parent for:

\(1\) The expenses of the veteran's last illness and burial to the
extent that such expenses are not reimbursed under 38 U.S.C. ch. 23.

\(2\) The parent's deceased spouse's just debts, the expenses of the
spouse's last illness to the extent such expenses are not reimbursed
under 38 U.S.C. ch. 51 and the expenses of the spouse's burial to the
extent that such expenses are not reimbursed under 38 U.S.C. ch. 23 or
51. The term "just debts" does not include any debt that is secured by
real or personal property. (Authority: 38 U.S.C. 1315(f))

\(p\) *Final expenses; year of exclusion*. For the purpose of paragraphs
(m), (n) and (o) of this section, in the absence of contradictory
information, the claimant's statement will be accepted as to the nature,
amount and date of payment, and identity of the creditor. Except as
provided in this paragraph, payments will be deducted from annual income
for the year in which such payments are made. Payments made by a
veteran, spouse or surviving spouse of a veteran, child or, in
dependency and indemnity compensation claims, by a parent during the
calendar year following the year in which the veteran, spouse or child
died may be deducted from the claimant's income for the year of last
illness or burial if this deduction is advantageous to the claimant.

\(q\) *Volunteer programs*:

\(1\) *Payments under Foster Grandparent Program and Older Americans
Community Service Programs*. Effective May 3, 1973, compensation
received under the Foster Grandparent Program and the Older Americans
Community Service Programs will be excluded from income in claims for
compensation, pension and dependency and indemnity compensation.
(Authority: Pub. L. 93-29; 87 Stat. 55)

\(2\) *Payments under domestic volunteer service act programs*.
Effective October 1, 1973, compensation or reimbursement received under
a Domestic Volunteer Service Act Program (including Volunteers in
Service to America (VISTA), University Year for ACTION (UYA), Program
for Local Services (PLS), ACTION Cooperative Volunteers (ACV), Foster
Grandparent Program (FGP) and Older American Community Service Program,
Retired Senior Volunteer Program (RSVP), Senior Companion Program
Service Corps of Retired Executives (SCORE) and Active Corps of
Executives (ACE), will be excluded from income in claims for
compensation pension and dependency and indemnity compensation.
(Authority: Pub. L 93-113; 87 Stat. 394)

\(r\) *Survivor benefit annuity*. For the purposes of old law pension
and section 306 pension, there shall be excluded from computation of
income annuity paid by the Department of Defense under the authority of
section 653, Public Law 100-456 to qualified surviving spouses of
veterans who died prior to November 1, 1953. (September 29, 1988)
(Authority: Sec. 653, Pub. L. 100-456; 102 Stat. 1991)

\(s\) *Agent Orange settlement payments*. In claims for pension and
parents' dependency and indemnity income, there shall be excluded from
computation of income payments received by any person in the case of *In
re Agent Orange Product Liability Litigation* in the United States
District Court for the Eastern District of New York (MDL No. 381).
(January 1, 1989) (Authority: Pub. L. 101-201, 103 Stat. 1795)

\(t\) *Reimbursement for casualty loss*. The following sources of
reimbursements for casualty loss will not be considered as income in
determining entitlement to benefits under the programs specified.
Amounts to be excluded from computation in parents' dependency and
indemnity compensation claims are limited to amounts of reimbursement
which do not exceed the greater of the fair market value or the
reasonable replacement cost of the property involved at the time
immediately preceding the loss.

\(1\) Reimbursement for casualty loss of any kind in determining
entitlement to parents' dependency and indemnity compensation benefits.
For purposes of paragraph (t) of this section, the term "casualty loss'"
means the complete or partial destruction of property resulting from an
identifiable event of a sudden, unexpected or unusual nature.

\(2\) Proceeds from fire insurance in determining dependency of a parent
for compensation purposes or in determining entitlement to old-law and
section 306 pension benefits. (Authority: 38 U.S.C. 1315(f))

\(u\) *Restitution to individuals of Japanese ancestry*. Effective
August 10, 1988, for the purposes of old law pension, section 306
pension, parents' death compensation, and parents' dependency and
indemnity compensation, there shall be excluded from income computation
any payment made as restitution under Public Law 100-383 to individuals
of Japanese ancestry who were interned, evacuated, or relocated during
the period December 7, 1941, through June 30, 1946, pursuant to any law,
Executive Order, Presidential proclamation, directive, or other official
action respecting these individuals. (Authority: Sec. 105, Pub. L.
100-383; 102 Stat. 905; Sec. 6, Pub. L. 102-371; 106 Stat. 1167, 1168)

\(v\) *Income received by American Indian beneficiaries from trust or
restricted lands*. There shall be excluded from income computation
payments of up to \$2,000 per calendar year to an individual Indian from
trust lands or restricted lands as defined in 25 CFR 151.2. (January 1,
1994) (Authority: Sec. 13736, Pub. L. 103-66; 107 Stat. 663)

\(w\) *Radiation Exposure Compensation Act*. For the purposes of
parents' dependency and indemnity compensation, there shall be excluded
from income computation payments under Section 6 of the Radiation
Exposure Compensation Act of 1990. (Authority: 42 U.S.C. 2210 note)

\(x\) *Alaska Native Claims Settlement Act*. There shall be excluded
from income computation any cash (including cash dividends on stock
received from a Native Corporation) to the extent that it does not, in
the aggregate, exceed \$2,000 per individual per annum; stock (including
stock issued or distributed by a Native Corporation as a dividend or
distribution on stock); a partnership interest; land or an interest in
land (including land or an interest in land received from a Native
Corporation as a dividend or distribution on stock); and an interest in
a settlement trust.

\(y\) *Monetary allowance under 38 U.S.C. chapter 18 for certain
individuals who are children of Vietnam veterans*. There shall be
excluded from income computation any allowance paid under the provisions
of 38 U.S.C. chapter 18 to or for an individual who is the child of a
Vietnam veteran. (Authority: 38 U.S.C. 1823(c))

\(z\) *Victims of Crime Act*. For purposes of old law pension, section
306 pension, and parents' dependency and indemnity compensation, amounts
received as compensation under the Victims of Crime Act of 1984 will not
be considered income unless the total amount of assistance received from
all federally funded programs is sufficient to fully compensate the
claimant for losses suffered as a result of the crime. (Authority: 42
U.S.C. 10602(c))

(aa) *Medicare Prescription Drug Discount Card and Transitional
Assistance Program*. For purposes of old law pension, section 306
pension, and parents' dependency and indemnity compensation, the
payments received under the Medicare transitional assistance program and
any savings associated with the Medicare prescription drug discount card
will not be considered income. (Authority: 42 U.S.C. 1395w--141(g)(6))

\[28 FR 32, Jan. 1, 1963; 57 FR 59298, Dec. 15, 1992; 58 FR 33767, June
21, 1993; 59 FR 35266, July 11, 1994; 59 FR 37696, July 25, 1994; 60 FR
2522, Jan. 10, 1995; 60 FR 18355, Apr. 11, 1995; 62 FR 5529, Feb. 6,
1997; 62 FR 51278, Sept. 30, 1997; 67 FR 49587, July 31, 2002; 68 FR
60852, Oct. 24, 2003; 70 FR 15591, Mar. 28, 2005\]

**Supplement *Highlights* references**: 6(2), 8(3), 12(4, 7), 14(4),
15(3), 27(2), 31(1), 54(2), 61(1), 65(1).