<p>I am a parent that is thinking on buying a home and put it on my son's name as a gift. I am wondering what are the rules that FAFSA would use to categorize this ownership on my son's name as an asset. He will be needing a home for next year, so I am thinking on buying it and have it on his name. Any ideas as to what the consequences would be for me or himself at the time of financial aid being award it. Please help me with some suggestions.</p>
<p>This would be one of those posts that drives me crazy. You have enough money to buy a house and gift it to your son, but want to find a way to not have him claim it as an asset so he can get financial aid?</p>
<p>The IRS limits how much money you can gift a person each year. If you buy a house for your son, and pay for it in full, your son will have a huge tax burden, since the amount about the IRS limit will be deemed income to him. That income will be reflected on his taxes and, therefore, FA applications.</p>
<p>oxnard…</p>
<p>First…do you realize that you earn too much for your child to get F/A?</p>
<p>Secondly…are you under the impression that F/A is free money? F/A is usually student loans and “some” work-study programs. Even if your son could somehow be awarded some F/A, what good is it if it’s just a bunch of student loans? I realize that the term “financial aid” implies some kind of gift…but it’s not. Only those families with VERY LOW incomes qualify for a little bit of free money for their kids’ education (very little bit!!)</p>
<p>Therefore, why don’t you just loan your own money to your son for college. At least he won’t have to pay the interest rates that student loans charge. Or, better yet, if you can afford to buy this extra home, then you can afford to pay for a UC education.</p>
<p>Please understand that F/A awards (which are mostly subsidized student loans and some work/study programs) are for truly needy families. Subsidized student loans are not for families who play games to hide money or mislead FAFSA.</p>
<p>People do buy houses so that their undergrad children have somewhere to live, but it’s done as an investment, especially for areas where housing prices are rising and where there’s limited student housing. Your child is essentially the property manager, arranging to have a few friends move in to help pay the “rent”. At the end of 3-4 years, the kid graduates, and the parents sell the investment or continue to rent it out. </p>
<p>I agree with other posters that if you have enough resources to look into setting up a living trust along with purchasing another house that you won’t be eligible for need-based aid. If your estate is large enough for a living trust for estate planning purposes, you should be setting that up regardless. You should be working with an attorney and a fee-based financial planner to make sure you do it the right way. Beating down your EFC is the least of your issues.</p>
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That’s not true. A gift is never taxable to the recipient. If the giver gives more than the allowed amount, a gift tax return is due but unless it exceed the lifetime amount, it won’t be taxable to the giver either.</p>
<p>^^^ </p>
<p>Giving someone a house is a huge gift. Look at the people (recipients) who had to pay taxes on the cars that Oprah gifted to them.</p>
<p>I think each parent is allowed to give a child about $10k a year without tax issues. I could be wrong.</p>
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<p>Especially when doing so will only likely result in getting an F/A package full of student loans.</p>
<p>I think the OP thinks F/A is a gift of free money.</p>
<p>The gift limit is $13,000 per giver, so two parents could give their child $26,000 per year with no gift taxes. Gifts above the $13,000/$26,000 annual limit are called “taxable gifts.” That doesn’t mean there’s a tax due if that amount is exceeded. There’s a $1,000,000 lifetime gift limit, so if the gift falls within that limit, even if all given at once, then no federal gift tax is due.</p>
<p>The giver must file IRS Form 709 for these taxable gifts, even when no tax is due. </p>
<p>To answer the poster’s original question, if the house is in the parents’ name then it’s an investment property and is reportable on the FAFSA form. If it’s in the child’s name then it’s probably not reportable. The net equity is reportable on Profile, so shifting from one asset class (cash) to another (real estate) might make no difference to Profile schools that use home equity in their formulas.</p>
<p>Edited to add: UCs only look at FAFSA, they don’t require the Profile.</p>
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In the case of the taxes won on the Oprah show, those are considered prizes and thus taxable to the recipient. Money, houses, cars etc given by a parent to the child is a gift. NOT taxable to the recipient. See Vballmom’s explanation above.</p>
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<p>As a CA taxpayer, this really bothers me too. I understand that there might be ways to accomplish this w/o jeopardizing FA, but those loopholes need to be eliminated. For every tuition dollar paid (or borrowed) by a paying UC student, 1/3 of it goes to pay for FA for others. Some students will be paying back outside loans for years, 1/3 of which is actually paying the tuition for others who do not pay. It is painful to me to think that one student may be burdened by student loan debt for 10 or more years so that another can enjoy his degree in the comfort of his new home, both of which he acquired for little or nothing.</p>
<p>I understand everyone’s objection but I do want to say that this could be a smart investment strategy. One of my kids gets very generous aid-- enough to cover university dorm with scholarship $. It kills me that we will use $20K of that money over 4 years for a dorm room when properties near the school cost under $150K and my kid could share costs with a roommate. That said, we don’t have the financial resources to qualify for the mortgage or to cover the unexpected expenses that could come up with a house so it’s out of the question for us. (And, honestly, my kid would be much better off on campus.) But it’s not a bad strategy for the right kid.</p>
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<p>While I don’t like the OP’s premise…I don’t think the above quote is correct either.</p>
<p>UC tuition goes to the school. F/A awards (subsidized loans, grants, etc) are not paid from the UC budget. They are paid /subsidized by the federal government or from other (non UC) sources. A UC school doesn’t fund its F/A awards to its students.</p>
<p>Therefore, no one’s tuiton is used to pay for someone else’s F/A.</p>
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<p>Oh, it’s a fine strategy…as long as American tax dollars aren’t used to subsidize it. </p>
<p>Which in the OP’s case, it would indirectly do. Instead of paying for her kid’s college costs, she’d use the money for a family investment, and then she’d get tax payer assistance to pay for her kid’s college. </p>
<p>We’d all like to do that! 
But, it’s kind of fraudulent behavior… :(</p>
<p>1/3 of all UC fee increase money goes directly for FA:</p>
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<p>^^^</p>
<p>What F/A does UCs pay for? UCs don’t pay for the subsidized student loans in kid’s F/A packages. UCs don’t pay for the Pell Grants, the Smart Grants, or the Cal Grants. </p>
<p>Are there some work/study jobs that the UCs are paying for that the federal gov’t isn’t paying for? If so, that money would be spent either way…either by hiring a student to do the work, or paying an outsider to do the work. So, if that’s the case, then the F/A portion isn’t driving up the costs…especially since hiring a student is probably cheaper than hiring an outsider.</p>
<p>Do the UCs use the so-called F/A portion of tuition to pay TAs? Is that what they’re calling F/A?</p>
<p>That 1/3 statement isn’t even a quote in the article. Where is the data that supports that claim?? And…the claim isn’t that 1/3 of tuition goes to aid; the claim is 1/3 of the increase goes to aid (but, again, offers no proof of that.)</p>
<p>Well, my son was offered a full ride, grants and stipends from a UC (though he didn’t take it), but the OP certainly wouldn’t be elegible for that. There’s need based waivers and grant aid from the UCs, but not for folks who can afford to buy extra houses for their children.</p>
<p>Info on UC grants:</p>
<p>[University</a> of California - Counselors](<a href=“http://www.universityofcalifornia.edu/educators/counselors/adminfo/fees/types/grants.html]University”>http://www.universityofcalifornia.edu/educators/counselors/adminfo/fees/types/grants.html)</p>
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<p>Which in the OP’s case, it would indirectly do. Instead of paying for her kid’s college costs, she’d use the money for a family investment, and then she’d get tax payer assistance to pay for her kid’s college. <<<</p>
<p>Unless, of course, a person uses their financial aid money (and maybe money from roommates) to pay a mortgage or lease-to-own instead of paying for room on a college campus. That is possible but the problem is that the people most likely to get that much financial aid don’t have the $ to put down on a house and don’t have the income to qualify for the mortgage. If someone has a rich grandparent willing to cosign on the mortgage, they could use financial aid to build equity and I don’t think it would be against the rules.</p>
<p>If a rich grandparent owns the house and it’s in the GP’s name, then I don’t see a violation.</p>
<p>But, when people are in effect hiding money or draining their assets (buying a second home) to attempt to qualify for F/A, then it’s rather fradulent.</p>
<p>And, as you said, those who really need F/A don’t have the income to buy a second home, therefore this is probably moot.</p>
<p>The OP hasn’t come back; it’s likely she’s seen that her idea will not work. Her income is likely way too high, and she probably didn’t know that F/A is mostly student loans. She may have thought her kid could somehow get an F/A package with free money, so the money she would have used for his college costs, could now be used for a second home. How nice.</p>