<p>Hi,</p>
<p>we are currently struggling with the FAFSA application.</p>
<p>M-I-L gifted us some stocks that we sold and we had some capital gains, most of which was put into our IRAs.</p>
<p>How do we report this in the FAFSA application without it looking like we gained twice as much as we actually did?
The capital gain is added to the income, and so are the IRA contributions, but it's the same money.
Are we making a mistake somewhere?</p>
<p>This is too late to help you now, but I will post this here in the hope of helping people reading this who have children in their sophomore year of hs or earlier. </p>
<p>You should have avoided taking capital gains in the calendar year before the year your child starts college, ie your “base year” (usually the year that consists of the 2nd half of your child’s junior year in hs and the first half of the senior year). Taking the capital gains last year would have been better, in terms of financial aid eligibility. You do have to report the capital gains on your tax return, and it increases your AGI. Likewise, you do have to add back in any IRA contributions that were deducted from your taxable income. You might try explaining to the schools (or in the space available on the FAFSA or Profile) that your 2010 income figures do not reflect your typical income - that there was a one-time increase in income due to the sale of stock. This may or may not help, but it probably doesn’t hurt to try.</p>
<p>I <em>highly</em> recommend that everyone, preferably by your child’s sophomore year of hs or early in the junior year, read Kalman Chany’s “Paying For College Without Going Broke” as well as this page on the FinAid.org website: [FinAid</a> | Financial Aid Applications | Maximizing Your Aid Eligibility](<a href=“http://www.finaid.org/fafsa/maximize.phtml]FinAid”>http://www.finaid.org/fafsa/maximize.phtml)</p>
<p>Here is the relevant section from the FinAid page:
</p>
<p>Thanks!
We knew it was the worst time, but for various reasons, refusal was not an option.
This is not the base year, but second year of college, not that it makes much of a difference.</p>
<p>That’s too bad, that the timing didn’t work out for you. We had a financial transaction that had to be carried out by the year that my elder child entered college. I spend WAY too much time on the internet, but I thank my lucky stars that late one night, early in my child’s hs years, I read that FinAid page that I linked. Because of that, we did the transaction in the year before the base year. Otherwise, there probably would have been NO FA eligibility at all for the first or second year of college, depending on which year it had been carried out. (Because of my poking around on the Web, I also did an EFC estimate back then - far better to be shocked then, rather than when you’re in the middle of the FA application process.)</p>
<p>Especially since your child is already attending college, it may be worth talking to the school’s FA office and pointing out that the increased income this year was a one-time thing. They have your child’s forms on file from last year (?and the year before, if your child is currently in the second year) and will know that you are telling the truth. </p>
<p>What do others here think - should the OP ask for a professional judgment type of adjustment? I know that PJ is sometimes done when there are large one-time expenses. What about when there is a one-time increase in income?</p>
<p>Did you make deductible or non-deductible contributions to the IRA? The way I see it -</p>
<p>If they were not deducted from your income, they are not added back, and you just have them as income once. (This is for a Roth or other non-deducted contribution).</p>
<p>If you deducted them, then they get added back, which cancels out the deduction. So you just have the added income once also.</p>
<p>It’s regular IRAs, not Roth.</p>