Reducing this 80pc take from rental income to a lower proportion would make it more attractive for nursing residents to rent out their property.
It would also leave residents with substantial cash to spend on themselves and in many cases ease the burden of “top-up” charges for social activities.
However, it could prove controversial as some nursing home residents would be uneasy about renting out their family home, or unable to effectively act as landlords.
A Department of Housing spokesman confirmed that its officials were in talks with the Department of Health to examine the Fair Deal scheme's financial assessment of income from the rental of a person's principal private residence.
"A number of options for policy and legislative change have now been identified," he said.
These "will be the subject of further discussion and exploration between the two departments with a view to eliminating any financial disincentives that may currently exist to letting homes while the owners are in nursing home care".
He said the discussions also included looking at incentives for the sale of these properties and how the proceeds would affect the financial assessment of the nursing home resident.
The review has to take into consideration whether financial incentives would mean a loss of revenue to the State. The Fair Deal scheme cost the taxpayer €1.28bn last year.
Health officials reporting to Minister Simon Harris said it was part of the work of an interdepartmental group.
This group is overseeing the recommendations of a review of the Fair Deal scheme.
One of the recommendations is to look at how a nursing home resident's rental income is financially assessed.
A spokeswoman said the "majority of the recommendations are expected to be completed in 2018".
Some nursing home residents may have dementia and may not be in a position to give informed consent.
Bibiana Savin, a regional co-ordinator with Sage Advocacy, the organisation which acts for older people and vulnerable adults and advises nursing home residents, said there were various issues to consider.
"If the house is rented through an agency, there are fees. The amount the resident can keep from the rent should be more generous than 20pc," she said.
However, Ms Savin said renting might be an answer for residents who could not insure their empty home.
Some currently let it to relatives rent-free.
Meanwhile, the full cost of the loss to the Exchequer from proposals to overhaul the Fair Deal scheme for farmers has yet to emerge.
It was announced over the summer period that the scheme will see the special situation facing elderly farmers acknowledged for the first time by the State.
Under the current rules, farm families and small business owners are required to set aside 7.5pc of the value of their land annually to fund a place in a nursing home.
However, the Cabinet has agreed to cap the bills at three years, allowing farmland and business assets the same status as the family home.
The Department of Public Expenditure had reservations about relaxing the scheme for farmers, but eventually gave it the go-ahead .
A number of protections will be put in place to ensure it is not exploited.
The limit will only apply if the land is farmed by a close relative.
Land that is leased to third parties will be counted as a normal asset.