<p>Now, I don't know much about how taxes or fin aid work, but I was looking over my CSS profile that my parents had just completed, and I noticed that they had put quite a large amount for itemized deduction.</p>
<p>Out of sheer curiosity, I have a couple of questions:
1)What exactly ARE itemized deductions?
2)How do they affect financial aid- especially through the institutional methodology?
3)Would a high itemized deduction amount result in an increased or decreased EFC?</p>
<p>bump
anyone?</p>
<p>A tax deduction is a reduction of the income subject to tax. Every person is entitled to a “standard deduction” or they can itemize deductions in their tax forms if the items add up to more than the standard amount. Some of the more common itemized deductions are:</p>
<p>Medical expenses (in excess of 7.5% of adjusted gross income)
State and local income and property taxes
Interest expense on certain home loans
Gifts of money or property to qualifying charitable organizations, subject to certain maximum limitations
Losses on non-income-producing property due to casualty or theft
Contribution to certain retirement or health savings plans
Certain educational expenses</p>
<p>The more deductions, the less taxable income you have. The less taxable income you have, the lower your CSS profile family contribution will be (all other things being equal.)</p>
<p>Thank you SamK. So, what is the effect of itemized deductions on EFC, if any?</p>
<p>EFC is primarily income driven - determined by taking your Adjusted Gross Income (AGI) and adding in untaxed income (typically 401k, etc). Itemized deductions don’t play a direct role in the calculation of EFC for the FAFSA. However, CSS profile schools like to really dig under the covers on what you are doing with your money. Some CSS schools will consider the specific itemized deductions of high medical bills, and your EFC could be reduced if your unreimbursed medical expenses exceed 3.5% of your income. I’m not aware of any other itemized deductions other than high medical bills that would have an effect on EFC under IM.</p>
<p>bump
anyone?</p>
<p>thank you dukedad!
:)</p>
<p>also, what is the effect of home equity on EFC, if any?</p>
<p>[Ask</a> Kantro: Does Home Equity Affect Eligibility for Financial Aid? What If You Sell the Family Home? - Fastweb](<a href=“Does Home Equity Affect Eligibility for Financial Aid? What If You Sell the Family Home? | Fastweb”>Does Home Equity Affect Eligibility for Financial Aid? What If You Sell the Family Home? | Fastweb)</p>
<p>Home equity is not considered on the FAFSA. For most CSS schools, home equity is treated as a parent asset and, as such, assessed at 5.6%. Every school is different, though, in “how much” home equity is considered. Many of the 568 group schools will cap home equity at 1.2 times income. Others at 2.4 X income. Others won’t include it at all. The only way to know for sure is to call a school’s FA office and ask them specifically about it.</p>
<p>Here’s more good reading on the subject…
<a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/416797-experience-financial-aid-568-schools.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/416797-experience-financial-aid-568-schools.html</a></p>
<p>In my opinion you can look at itemized deductions and like others have said a finaid officer can see if you have unusually high medical deductions, can see if you have a second home that isn’t rental property, can see if you give large donations and a few other things. These deductions should parallel other information in the Profile so the deductions can be used to match up other information in the tax forms. While high deductions lower adjusted gross income some of those deductions relate directly to assets (potentially a second home which is an asset, or large charitable contributions which could point to cash assets) so most of the time deductions might help but they can also be neutral.</p>
<p>^^Just to clarify…itemized deductions will reduce your taxable income, but will not reduce your adjusted gross income, which is the important one when it comes to evaluating income for determining EFC.</p>
<p>^^ Whoops yes, you are correct, I was typing and reading a post simultaneously…</p>