R filed application for old-age insurance benefits in April 1960 and was found to be entitled to benefits beginning with April 1959. In 1959, R owned and operated a rooming house which had 16 units consisting of a single room or a room with private bath. R occupied one room with a private bath. Seven of the units were rented by more or less permanent guests and the other eight units were rented on a transient basis. R provided laundry and main service for all of the rented units.
R reported her net earnings from self-employment for 1959 as $1,567. However, in computing her net earnings from self-employment, R showed her gross income as $5,301, which amount included $738 as the rental value of the unit that she occupied. She also showed business expenses of $3,734, which included $257 attributable to that unit for heat, light, depreciation, etc. The question is whether the amounts relating to the unit occupied by R should have been included in computing her net earnings from self-employment.
The amount of R's earnings for 1959 will affect the computation of her benefit amount, since under section 215 of the Social Security Act the amount of the old-age insurance benefit is based on the average monthly earnings of the worker. Also, since R is entitled to benefits beginning April 1959, the amount of her earnings for that year will affect the determination as to what deductions, if any, must be made from her benefits for 1959 under section 203 of the Act. If R's earnings for 1959 exceed $1,200, deductions for one or more months may have to be made from her benefits for 1959.
Section 211(a) of the Act provides, in pertinent part, that the term "net earnings from self-employment" means the gross income, as computed under subtitle A of the Internal Revenue Code of 1954, derived by an individual from any trade or business carried on by such individual, less deductions allowed under such subtitle which are attributable to such trade or business.
In the present case, R was engaged in a trade or business of operating a rooming house, and the gross income she derived therefrom is includible in computing her net earnings from self-employment. However, a person does not derive any income from dealing with himself, and the rental value of the unit occupied by R is therefore not includible in her gross income. Accordingly, R should not have included in her gross income the amount of the rental value of the unit occupied by her, and her gross income for 1959 is $4,573 rather than $5,301 as stated by R.
As to the expenses attributable to the unit occupied by R, they are personal or living expenses and may not be deducted from her gross income in computing her net earnings from self-employment. Therefore, R's deductible expenses should not include the amount attributable to the unit occupied by her; and deductible expenses are $3,477 rather than $3,734 as stated by R.
Accordingly, it is held that R's net earnings from self-employment for 1959 are $4,573 (gross income) less $3,477 (deductible expenses), or $1,096. Therefore, her earnings for 1959 for the purpose of computing the amount of her old-age insurance benefits are $1,096. Since R's earnings for 1959 are less than $1,200, no deduction may be imposed against her benefits for any month of that year and her benefits are payable to her for all months of 1959 beginning with April of that year.
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