First of all, I want to acknowledge that our family is very fortunate. We have a higher family income and our child is an excellent student who may have a shot at a top-tier academic institution. In our case, we have two houses, our primary residence and our original starter home nearby. We are still paying mortgage payments on both. We used to use our starter house as a rental property, but after my mother’s multiple health problems, she now lives there. She lives only on social security and has no savings, so we make all the related payments - mortgage, gas, utilities, internet/phone, repairs. We probably spend $20K/year on those. We are grateful to be able to do this, but I don’t know how we will continue to pay two mortgages, cover all her and our bills, and pay $48K EFC. We are not comfortable transferring ownership of the house to my mother. If we do take out an equity loan on her house to pay for college will it count to reduce the asset value? Do schools ever take into account that some of our income is wrapped up in grandparent care? Any other tips on how to handle this unusual situation?
Is it possible to move the grandparent into your home, sell the second home, and use the proceeds to help pay for college?
Turbotax has a very easy-to-follow tutorial on how to figure out if your elderly parent can be a dependent for tax purposes. You might want to run those numbers to see if there is a “cheaper” way to take care of your mom (i.e. a tax-advantaged way) which may get you closer to freeing up the money you need. And you are lucky- since you have already used the house as a rental, you’ll have a great case for what represents “fair market rental”.
The answer to this is yes. The value is calculated after subtracting loans.
Econpop: No, not if I want to remain sane and married. My mother is very challenging and high maintenance.
I’m not seeing how the “fair market rental” of a second property relates to anything that needs to be reported on financial aid documents.
This sounds like a situation where you need to look carefully at the affordability of universities, and include on your “list of schools to apply to” some that are going to be affordable.
There are certainly students who have the stats for a top tier university but based on how financial aid is calculated cannot afford to attend one of them. I happen to know some farmers and talk to small business people and many of them fall into this category (financially almost all of them do, the “high stats” part varies).
The second house will be reported on the FAFSA as a parent asset. The reportable value is market value less any mortgage/home equity loans on the home.
For federal aid purposes, the costs associated with caring for an elderly parent will not be a factor. If you provide at least 51% of her support (be sure to attribute her SS payment as being part of her share), you can include her in the household size.
Does your daughter have options that would come in at what your family can truly afford, or does she have an unusual major that means her only options will be places with that EFC?
We had family obligations that meant our daughter’s options were more restricted than I had hoped they would be. But it turned out OK. Her education was affordable for us even with a surprise breadwinner job loss in her junior year. Knowing now what you know now means you and your daughter can create a better college list.
Blossom: Looking at the parent as a dependent information, I think I can add my mother as a dependent even though she lives in our other house. Thanks for the tip!
Belknap- that’s what I meant by having already determined a fair market value IF the mom is indeed a dependent. You’re likely most of the way to the IRS level of “support”, especially if social security is her only income.
Corki- good luck. I find the tax software much easier to figure out than going through the IRS regs…
Maybe I’m wrong…but even if your mom is a dependent, that second home is a second home. The equity will need to be reported on the fafsa. It most definitely will need to be reported on the Profile, as will the equity in your primary residence.
You mention that your income is higher. Really this all might have little effect on need based aid.
You need to figure out what you can afford to pay annually. That is what is important. Keep the expenses of running a second home in your mind as well.
Got it. I was looking at it from a financial aid perspective (which is what OP asked about), and it sounds like you are addressing an IRS/federal income tax issue.