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or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family" [24 CFR 5.609(b)(2)] . Business Expenses Net income is "gross income less business expense" [HCV GB, p. 5-19]. To determine business expenses that maybe deducted from gross income, SARA will use current applicable Internal Revenue Service (IRS) rules for determining allowable business expenses [see IRS Publication 535], unless a topic is addressed by HUD regulations or guidance as described below. Business Expansion HUD regulations do not permit SARA to deduct from gross income expenses for business expansion. Business expansion is defined as any capital expenditures made to add new business activities, to expand current facilities, or to operate the business in additional locations. For example, purchase of a street sweeper by a construction business for the purpose of adding street cleaning to the services offered by the business would be considered a business expansion. Similarly, the purchase of a property by a hair care business to open at a second location would be considered a business expansion. Capital Indebtedness HUD regulations do not permit SARA to deduct from gross income the amortization of capital indebtedness. Capital indebtedness is defined as the principal portion of the payment on a capital asset such as land, buildings, and machinery. This means SARA will allow as a business expense interest, but not principal, paid on capital indebtedness. Negative Business Income If the net income from a business is negative, no business income will be included in annual income; a negative amount will not be used to offset other family income. Withdrawal of Cash or Assets from a Business HUD regulations require SARA to include in annual income the withdrawal of cash or assets from the operation of a business or profession unless the withdrawal reimburses a family member for cash or assets invested in the business by the family. Acceptable investments in a business include cash loans and contributions of assets or equipment. For example, if a member of an assisted family provided an up-front loan of $2,000 to help a business get started, SARA will not count as income any withdrawals from the business up to the amount of this loan until the loan has been repaid. Investments do not include the value of labor contributed to the business without compensation. Co-owned Businesses If a business is co-owned with someone outside the family, the family must document the share of the business it owns. If the family's share of the income is lower than its share of ownership, the family must document the reasons for the difference. 2/25/13 Page 6-10