FAFSA and renting out half a two-family

[garland]

<p>I could use some help for one of my students. I assist students in my college program with FAFSA filling out, though they're the actual preparers. I try to help them wend their way through the questions. But I am stumped by one student's situation, and thought maybe someone here might have had a similar one.</p>

<p>Her mom owns a two-family house, and rents out the bottom floor to family. Our FA office, has, in the past, looked at this as an asset, but since it's also her primary home, I'm wondering how she should report it, as I'm not sure they always get it right. Would she report half the equity in the house as an asset? Less than half? None, since it's her home? Just the rental income?</p>

<p>Anyone who knows how to handle this set of circumstances, especially if you've experienced it, would be very helpful. Thanks!</p>

[swimcatsmom]

<p>This might help
[FinAid</a> | Professional Judgment | Rental Property and Multi-Family Residences](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>

<p>

<br>
Rental Property and Multi-Family Residences</p>

<p>The Federal need analysis methodology ignores the net market value of the family’s primary residence. Sometimes, however, the family’s primary residence is a multi-family dwelling. For example, the family might own a duplex, living in one half and renting out the other.</p>

<p>For multi-family homes and apartment buildings where the owner occupies a unit, the portion not occupied by the owner is treated as an investment asset. Only the units occupied by the family are considered to be the family’s primary residence.</p>

<p>If the property is not deeded separately, the value of the primary residence versus the investment property can be divided using any of the following methods:
**
* Number of units occupied by the owner versus the number of units occupied by the tenants.
*** Square footage occupied by the owner versus the square footage occupied by the tenants.
* Number of bedrooms in each unit.
* Prorated according to the fair rental value of each unit. </p>

<p>This allows one to apportion an estimate of the fair market value of the building. For example, in a case involving a duplex, the net market value should be divided evenly.

</p>

<p>edit - or this excerpt if more appropriate</p>

<p>

If the family rents out a room in their home, it is still considered part of the family’s primary residence, unless it has a separate mailing address (i.e., a separate outside entrance).
**
The key distinction is whether the rental property is considered part of the family’s primary residence or not. If it is part of the family’s primary residence, it is not reported as an asset.** If it is separate from the family’s primary residence, it is reported as an asset. Determining whether a rental property is separate is often a judgment call, but any of the following are good signs that a rental property should be reported as an asset on the FAFSA:

</p>

[garland]

<p>Wow, you’re good, SCM! So, and this is a rhetorical question, how is some random, non-college-savvy family supposed to fill out a form and know how to answer that question? Last year, my student had aid rescinded when the FA office changed her form. She was hoping to get it right to start with this year, but i guess she’ll need to go to them to see how they want it filled out. this is a young woman who’s mom makes about 12K a year, but the “asset” is of course really affecting her aid.</p>

[swimcatsmom]

<p>garland - the above link was from the finaid website. Another poster pasted this link in another post about another question
<a href=“http://ifap.ed.gov/sfahandbooks/attachments/0809AVGCh2.pdf[/url]”>http://ifap.ed.gov/sfahandbooks/attachments/0809AVGCh2.pdf&lt;/a&gt;&lt;/p&gt;

<p>It also has a section on page 19 that addresses your question which may be helpful to your student (as this is the ‘official’ publication on the subject I think).</p>

<p>One thing - you say the Mom only makes $12k a year. Is this her total income including the rental income? Can she file a 1040a or 1040ez? Or is that precluded because of the rental income? If she can file a 1040a or 1040ez she should qualify for the simplified needs test with income under $50k and assets would not be counted. With income under $20k she should qualify for automatic zero EFC. But maybe she does not qualify for the a/ez option with the rental income.</p>

<p>edit - Yes I think the rental income does mean she has to do a 1040 so the simplified needs and automatic zero are not available to her.</p>

[garland]

<p>Thanks, SWM. I had already looked over her 1040 and seen that she’d itemized because of the rental income, because of answering the “could you file a 1040A or EZ” question.</p>

<p>I wonder whether they’re losing more income than they’re gaining over that, but I would be hesitant to give that kind of financial advice. I’ll suggest to the student that she raise the question with her mom. the problem is, they could forego the rental income and still not get more aid, as we are decidedly *not *a full-needs school.</p>