14 Apr Does Rental Income Impact Your Social Security Benefits? Here’s What You Need to Know

According to the Social Security Administration (SSA), 9 out of 10 Americans aged 65 and older received benefits in 2020. In fact, these benefits make up about 30% of the total income for older adults.

If you’re retired, disabled, or widowed, chances are you’ll qualify for Social Security. But there are a few key rules to be aware of—especially if you’re still working.

Earning Before Full Retirement Age: What to Expect

If you claim benefits before reaching your full retirement age (FRA)—currently 66 and 4 months for those born in 1956, gradually increasing to 67—your income from work can temporarily reduce your Social Security payments.

In 2022, if you’re below FRA and earn more than $19,560, the SSA withholds $1 for every $2 you earn above that limit. But don’t worry—once you reach full retirement age, those withheld benefits are recalculated, and you’ll get credit for them in future payments.

So how does this apply to income outside of traditional employment—like rental properties?

Rental Income and Social Security: The Basics

Generally speaking, rental income does not count against your Social Security benefits. The SSA focuses on earned income, which includes wages from a job or net earnings from self-employment. On the other hand, investment and passive income streams typically do not impact your Social Security.

This means income from the following sources won’t reduce your benefits:

• Rental property cash flow
• Pension or annuity distributions
• IRA/401(k) withdrawals
• Dividends and capital gains
• Inheritances
• Lawsuit settlements
• Other government programs

But There Are Exceptions…

While most rental income is considered passive and exempt, there are a few scenarios where it could be treated as earned income and counted against your benefits:

1. You’re a real estate dealer or broker and earn income as part of your business.
2. You rent out farmland and are actively involved in managing or producing agricultural products.
3. You provide services for your tenants that go beyond basic landlord duties.

Let’s take a closer look at that last point.

If you’re offering services primarily for the convenience of your tenants—like daily cleaning, bed-making, meal preparation, or laundry—your rental income might be reclassified as active income. This could apply if you’re running a bed and breakfast, or managing an Airbnb or vacation rental where you’re heavily involved in hospitality services.

Once You Reach Full Retirement Age

After hitting full retirement age, you’re in the clear. You can earn as much as you’d like—whether from a job, a business, or rental properties—without reducing your Social Security benefits.

Final Thoughts

If you’re collecting Social Security and generating income from real estate, understanding the difference between passive and earned income is key. In most cases, rental income won’t affect your benefits—but exceptions do exist.

To make sure you’re maximizing both your investment income and your Social Security payments, it’s always a smart idea to talk with a financial advisor who understands your full financial picture.

This content is for informational and educational purposes only. It’s based on sources we believe to be reliable. It should not be interpreted as legal, tax, or investment advice. For advice specific to your situation, consult with a qualified professional at Stephen & Associates.