<p>My son we be a freshman in college in September. He has received financial aid. We are thinking of selling our house and buying a much less expensive house to cut our monthly mortgage expenses to forestall taking on loans for the balance of his tuition. But my worry is that the savings we will incur from a lower mortgage payment will be eaten away by a decrease in financial aid. The school he will be attending is a CSS Profile school. Our monthly mortgage payment is $3500 and would decrease to $1700 month (both payments include property taxes). That's $21,000 less in expenses per year. Right now we have 20% equity in the house we live in. By taking that money and putting it towards the downpayment for the less expensive house we would have about 30% equity. </p>
<p>Does anyone have a sense of how this change would affect our EFC at a CSS Profile school?</p>
<p>The schools don’t take mortgage payments into account. Where you may end up getting hit is with the lump sum you get for the house. If it is sitting in an account some where, it is assumed that it can go to school costs. Some schools using profile do give some protection to primary home equity, if your student is at a school where there is some exemption from the equity, this could be an issue.</p>
<p>It just occurred to me that making money on a house sale is a reportable even on the tax form, is it not? Would that be included as income for that year even if rolled immediately into another house? Anyone know the answer to this one?</p>
<p>If you own your home and have used it as your principal residence for two of the last five years or have lived in it for the last two years, the first $250,000 in capital gains is tax free. If you are married, and the property is in both your names, your wife can claim another $250,000 worth of tax-free capital gains for a total of $500,000.</p>
<p>I know the tax implications of the sale of a home. I want to know how it can affect financial aid. I know folks who have gotten hit by other one time payouts of things regardless of the tax implications.</p>
<p>cptofthehouse -that is a good question. It would not be sitting in an account long, but would we have to show it as one time income even if we don’t owe any taxes on it? I wonder if the schools make an exception for this as it is rolled right over into the next house. I would think having 30% equity instead of 20% puts that 10% in the category of funds expected to be borrowed against for tuition.</p>
<p>I just reread the replies and realize that I can ask the school about their policy on home equity protection. I am surprised they don’t take the mortgage payments into account. In fact I did find it interesting that one is never asked to give an expense to income ratio when figuring out a family’s need. I guess it’s all formulas based on your income and the cost of living in the area you reside.</p>
<p>They don’t care how you spend your money. They just care how much you are getting and how much in assets you have. They do not care about the cost of living in your area either. I pay dearly for being in my high tax, high cost area. </p>
<p>Drae, I am hoping some of the financial aid gurus here can answer this one about home sales. I know folks who have been wonked with lump sum retirement payments and other one time money sums.</p>
<p>As long as the money is reinvested in a new home by the time you file Profile/FAFSA next year, there should be no effect. They both use a “snapshot” of assets available as of the filing date.</p>
<p>I received an answer from the school telling me that they do protect the equity in the house even though they are a CSS Profile school, but they could not tell me how they would consider the untaxed income from the sale of the house. Each case is looked at individually and based on the the FAFSA/tax returns. Does anyone have experience with reporting the sale of a home and it’s effect on income/financial aid?</p>
<p>I believe I have found the answer to my own question in IRS publication 523.</p>
<p>“Do not report the 2009 sale of your main home on your tax return unless:
You have a gain and you do not qualify to exclude all of it,
You have a gain and choose not to exclude it, or
You have a loss and you received Form 1099-S.”</p>
<p>So if your gain is under the limits for exclusion you do not report the income at all. Therefore it will not effect the EFC.</p>
<p>My guess is the impact would be minimal as long as you put your cash out from house number one into house two. The only other area that could change although I think the impact would be minimal is the asset valuation of House 1 vs. the asset valuation of House 2.</p>
<p>As others have said the colleges do not really consider “outflow” as that is somewhat discretionary spending.</p>
<p>Unless the gain is taxable (and as noted above, if residence requirements are met, the first $500,000 of gain is NOT taxable for a married, filing joint couple), it will not be shown anywhere on your tax return.</p>
<p>The way I can think of that this would affect Profile is if the proceeds are sitting in an account when Profile/FAFSA are filed. If so, ~5% of the amount would be the amount the EFC is increased due to the additional assets. If the entire proceeds are reinvested in the next home, I do not think it will affect EFC.</p>
<p>Ask your accountant why the proceeds would be on your tax return. They shouldn’t be.</p>
<p>I know this topic is old but it’s timely for me. I am selling our home and will likely NOT put any proceeds into a new home but instead rent - maybe pre-pay some rent and/or put down a large deposit, pay off debt, and anything left will go to savings or a retirement account.</p>
<p>Anyone know what THAT effect on FA will be? S is at a FAFSA only school and D won’t be in college for 3 more years.</p>
<p>I think you are going to have a reportable gain since you are not rolling it into a new house. Also once you get the money, it will be reported as an asset but the hit on assets is not as great It’s the gain that is counted as income that will hurt since the % income is hit is very high.</p>
<p>There’s not likely to be a reportable gain. The rule about rolling a gain into a new house went away in 1997. $250,000 single/$500,000 married filing jointly of gain is excludable if you’ve lived in the house 2 of the past 5 years. The only hit will be the amount carried as an asset. Parental assets are assessed at 5.6% above your asset allowance.</p>