August 28, 2026
4:30 am

What Is the Medicaid Home Equity Limit?

The Medicaid home equity limit is a cap on how much equity you can have in your house and still qualify for long-term care Medicaid. Above the cap, the state must deny coverage for nursing facility services and for home and community-based waiver services — not because the house is a countable asset, but because Congress wrote a separate disqualification rule specifically about home equity.

It came in with the Deficit Reduction Act of 2005 and sits at section 1917(f) of the Social Security Act. Before that law, a home occupied or intended to be returned to was simply exempt regardless of value.

The decision this creates for a household is genuinely difficult, and it usually arrives at the worst possible moment: a parent is in a rehab bed, the discharge planner is asking about Medicaid, and the family home in a market that appreciated for thirty years is now worth more than the limit. What follows is the exception that lets most families skip the problem entirely, the four options when it does apply, and why the most intuitive of the four is usually the worst. This is education, not legal advice.

In This Article

The Numbers, And The Range Between States
The Exception That Ends The Analysis For Most Families
Option One: Do Nothing Yet, And Establish Intent To Return
Option Two: Reduce The Equity, Not The Ownership
Option Three And Four: Sell The House, Or Transfer It
Where A Life Insurance Policy Fits, And Where It Does Not
Frequently Asked Questions

The Numbers, And The Range Between States

Federal law sets a floor and lets each state elect a higher figure up to a ceiling. The 2006 base figures were $500,000 and $750,000, and both are indexed annually to the consumer price index.

By 2025 the indexed figures had climbed to roughly $730,000 for states using the minimum and roughly $1.1 million for states electing the maximum. Treat those as approximate. They rise every January, states occasionally change their election, and this is exactly the kind of figure that goes stale in published guidance. Confirm the current number for your state with the state Medicaid agency before you make any decision that depends on it.

Two mechanical points matter as much as the number itself. First, the test is equity, not value: fair market value minus mortgages, home equity loans and liens. A $900,000 house with a $250,000 mortgage carries $650,000 of equity. Second, the limit applies only to long-term care services. It does not block ordinary Medicaid coverage for someone otherwise eligible, and it does not make the house a countable resource for the general asset test.

The Exception That Ends The Analysis For Most Families

Before doing anything else, check this, because for a large share of households it makes the whole question disappear.

The home equity limit does not apply if any of the following lawfully resides in the home: the applicant’s spouse; the applicant’s child under age 21; or the applicant’s child of any age who is blind or permanently and totally disabled under the Social Security standard.

Read that again, because it is the most important sentence on this page. A married couple where one spouse remains in the house is generally outside the equity limit entirely, no matter what the house is worth. A widow whose disabled adult son lives in the home is outside it. Families sell houses every year that they did not need to sell.

Verify it in writing with the state Medicaid agency, and be precise about the word “resides.” It generally means actually living there, not owning an interest or visiting. For a disabled adult child, the state will want documentation of disability status, and a Social Security disability determination is the usual proof.

If someone in that list lives in the home, stop here and talk to an elder law attorney about the rest of the application. The equity limit is not your problem.

Option One: Do Nothing Yet, And Establish Intent To Return

If the exception does not apply, the first option is deliberate inaction, and it is more often correct than families expect.

In most states, a home is an excluded resource for a nursing facility resident who signs a statement of intent to return home, even if returning is medically unlikely. That exclusion is separate from the equity limit and survives it. So a house below the equity cap can be kept indefinitely without blocking eligibility, and the family does not have to sell anything.

The state’s claim comes later, through estate recovery: after the beneficiary’s death, the state must seek recovery from the estate for long-term care services paid, and in most states the home is the principal asset it reaches. That is a real cost and it should be understood at the outset rather than discovered by an heir. Read how estate recovery works and ask specifically whether your state uses an expanded estate definition that reaches assets passing outside probate.

Doing nothing is right when equity is under the limit, when heirs understand the recovery claim, and when nobody needs the sale proceeds. It is wrong when the mortgage, taxes, insurance and upkeep on an empty house are draining the same money that pays for care.

Option	Effect on equity test	Main risk	Best when
Spouse or qualifying child lives there	Limit does not apply at all	None; document residency	Almost always check this first
Keep the home, intent to return	Works if equity is under the cap	Estate recovery claim after death	Heirs understand the claim; carrying costs are low
Reverse mortgage or equity loan	Lowers equity below the cap	Occupancy rules; cash becomes countable	Person is staying home on a waiver, not institutionalized
Sell the house	Removes the house entirely	Creates fully countable cash to spend down	Home is empty, deteriorating and costly to hold
Transfer the house	Removes it, but triggers look-back review	Penalty months with no coverage	Only under a recognized exception, with counsel

Option One: Do Nothing Yet, And Establish Intent To Return

Option Two: Reduce The Equity, Not The Ownership

Because the test measures equity rather than value, borrowing against the house lowers the number. The Deficit Reduction Act contemplated this directly: the statute contemplates that an individual may use a reverse mortgage or home equity loan to reduce equity below the limit.

Two instruments do the work. A home equity loan or line of credit requires income and credit qualification and creates a monthly payment, which is difficult for someone entering long-term care. A reverse mortgage under the FHA Home Equity Conversion Mortgage program requires the borrower to be at least 62 and to occupy the home as a principal residence — and that occupancy requirement is the catch. A borrower who moves permanently into a nursing facility generally triggers the loan becoming due after an absence of more than twelve consecutive months. A reverse mortgage is therefore a tool for someone staying at home on a waiver program, not for someone already institutionalized.

There is a second complication. The cash you pull out is now a countable resource. You have converted an excluded asset into countable money, which then has to be spent down. Timing and sequencing here are technical and state-specific. Our comparison of tapping home equity against selling a policy lays out how the two liquidity sources differ.

Option Three And Four: Sell The House, Or Transfer It

Selling the house is the option families reach for first and it is usually the worst of the four. Selling converts an excluded or partially excluded asset into fully countable cash, which must then be spent down to the individual resource limit — $2,000 in most states as of 2026. There are situations where it is right, chiefly when the house is unoccupied, deteriorating and expensive to hold, or when the family needs the money to pay privately for care in a setting Medicaid would not cover. But “we sold the house to qualify for Medicaid” is, on its own, backwards.

Transferring the house to a child or a trust is the option that does the most damage when done without counsel. An uncompensated transfer inside the 60-month look-back creates a penalty period computed by dividing the transferred value by the state’s penalty divisor, and the penalty does not begin until the person is otherwise eligible and needing care. See how the look-back works and how the penalty divisor converts a transfer into months.

There are recognized exceptions to the transfer penalty for the home — transfers to a spouse, to a child under 21 or a blind or disabled child, to a sibling with an equity interest who lived there for at least a year, or to a caregiver child who lived in the home for at least two years and provided care that delayed institutionalization. Each has strict documentation requirements. None of them should be attempted from a web page. Get an elder law attorney.

Where A Life Insurance Policy Fits, And Where It Does Not

Be plain: the home equity limit is about real estate. A life insurance policy has no effect on it, and selling a policy does not lower home equity by a dollar.

The honest connection is about which asset a family liquidates first when care has to be paid for privately. That is a real question and the order usually deserves more thought than it gets.

Life insurance is separately relevant to eligibility on its own terms. In most states, if the aggregate face value of policies on one insured exceeds a modest threshold, commonly $1,500 though states set it independently, the cash surrender value is a countable resource. Term insurance with no cash value generally is not counted. See when life insurance counts as a Medicaid asset, and confirm your state’s threshold with the state agency.

Where the two questions meet is timing. If a household is going to need private-pay money for a penalty period, for a care setting Medicaid does not cover, or for the community spouse’s expenses, an in-force policy is sometimes a better source than the house — it does not require a sale, a move, or a reverse mortgage, and a sale in the secondary market can produce substantially more than a surrender. It is the wrong source when the face amount is small, when a surviving spouse still needs the death benefit, or when the insured is healthy enough that offers will be low.

Sequence it with an elder law attorney, because a lump sum received during an application changes the eligibility picture in the month of receipt and afterward. To learn what a policy is actually worth before that meeting, send the policy cover page for a free, no-obligation review or call (732) 978-9575.

Frequently Asked Questions

How much home equity is too much for Medicaid?

Federal law sets a floor and a ceiling that each state elects between, both indexed annually. By 2025 the figures had reached roughly $730,000 at the minimum and roughly $1.1 million at the maximum. They rise each January and states can change their election, so confirm the current figure for your state with the state Medicaid agency before relying on it.

Does the limit apply if my spouse still lives in the house?

No. The home equity limit does not apply when the applicant’s spouse, a child under 21, or a blind or permanently and totally disabled child of any age lawfully resides in the home. This exception removes the issue for a large share of married applicants. Verify it in writing with the state Medicaid agency and be prepared to document residency.

Is home equity the same as home value?

No, and the difference often decides the case. Equity is fair market value minus mortgages, home equity loans and liens. A house worth $900,000 with a $250,000 mortgage carries $650,000 of equity. That is why borrowing against the home can bring a household under the limit even though the house itself has not changed in value.

Should I sell the house to qualify?

Usually not, and this is the most common mistake. Selling converts an excluded or partially excluded asset into fully countable cash that then has to be spent down to the individual resource limit. It makes sense when the home is unoccupied, deteriorating and expensive to hold, or when the family needs the proceeds for care Medicaid would not cover. Ask an elder law attorney first.

Can a reverse mortgage solve the problem?

Sometimes, for someone remaining at home. An FHA Home Equity Conversion Mortgage requires the borrower to be at least 62 and to occupy the home as a principal residence, and generally becomes due after an absence of more than twelve consecutive months. That makes it a tool for a person on a home and community-based waiver rather than someone already in a nursing facility.

Does selling a life insurance policy help with the equity limit?

No. The equity limit measures real estate only, and a policy sale does not change it by a dollar. Life insurance matters separately, because in most states the cash surrender value of policies whose aggregate face value exceeds a modest state threshold is a countable resource. Sequence any policy decision with an elder law attorney, since a lump sum changes eligibility in the month received.

Find out what your policy is worth — free, confidential, no obligation.

A 15-minute educational review covers your eligibility, every alternative, and a realistic view of what each path would net you.

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