<p>My child will start college in Fall 2010. She is talented academically and otherwise and is a strong candidate for top schools. I am widowed, unemployed, many years out of the job market, and lumbered with some health problems which may prevent me from obtaining employment. (Did I mention old!! - age 59) My annual income is about $37,000 per year, which common sense would say is low enough to qualify my daughter for substantial financial aid. The problem is that almost 2/3rds of this comes from the rent on a small duplex I own and rent out. The duplex is worth about $200000 and is completely paid for. FAFSA treats this whole $200000 as available to satisfy college costs, or so it appears. I obviously cannot afford to sell the duplex and still have enough income to cover my basic living expenses. I would appreciate advice on how to present this situation to financial aid officers.</p>
<p>Create a business structure and move the rental into it. </p>
<p>For FAFSA, assets of businesses with less than 100 employees are not counted as available assets to pay for college. Profile schools of course ignore this.</p>
<p>You can get a little creative with the valuation, too. Look up what the federal multiplier is for your area and when you bought the place, it might give you a lower value you can legitimately use.</p>
<p>Also, after an allowance, only 6% or so of the value is counted towards your EFC probably $10K or so. A small home equity of $40K would cost you around $240/month, whether this is overly burdensome only you can say. Your daughter can help pay this back after graduation.</p>
<p>Here’s the federal housing calculator:</p>
<p>[FinAid</a> | Calculators | Federal Housing Index Calculator](<a href=“Your Guide for College Financial Aid - Finaid”>Your Guide for College Financial Aid - Finaid)</p>
<p>Can you qualify for the simplified needs test for FAFSA? With that income level, you very well may be able to - see the defintion on page 4 here:
<a href=“http://ifap.ed.gov/efcformulaguide/attachments/111408EFCFormulaGuide0910.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/111408EFCFormulaGuide0910.pdf</a></p>
<p>Also, if you look at the chart on page 19, you’ll see that you have an asset protection allowance of around $28K. Beyond that, your assets are contributing to your EFC by 5.6% of their value per year. The value is the market value price if you had to sell that asset on the day you file FAFSA less any selling costs (repairs that would be required, seller’s fees and expenses, etc.) and any debt that is attached to the asset. I would certainly look for comparable actual selling prices, especially in this market!</p>
<p>Yeah-- I’d go for the simplified needs test, even if it meant not itemizing some deductions in order to qualify.</p>
<p>I *think *income from rental has to be reported on a 1040 (not a 1040A) so it may not be possible to qualify for simplified needs unless she meets one of the other criteria.</p>
<p>I have a friend who was in a similar situation, though his income was not as low as yours. He was bounced out of the financial need category at all of the schools his son and daughter applied to because of the equity in his rental property despite the fact that it was the determinant of the family income as well retirement.</p>
<p>SCM, I was thinking that they might qualify for reduced lunches or one of the special criteria if there were others in the household.</p>
<p>I think that setting up a corporate structure for the rental business could be beneficial in several ways. Definitely something to consider and dividend income is allowed on 1040A.</p>
<p>I agree that you should incorporate, and should consider an S corp. There are a large number of online companies that will walk you through the process for a couple of hundred dollars. I incorporated a few years ago and found it pretty simple(completely different type of business). The hardest part was deciding which company to go with. You do not need to go for all the bells and whistles that these companies offer (my mistake and it cost more).</p>
<p>The benefits of incorporating may only be helpful for FAFSA schools,but not as helpful for Profile schools since the profile schools have the business and farm supplement which will ask you to list the business assets. The profile schools will also examine any business deductions and will feel free to evaluate and eliminate them (depreciation exprenses, travel deductions, etc). However, even at a Profile school she would probably be eligible for Federal aid based on FAFSA info (Pell, ACG, possibly SEog, Subsidized loans) and any state programs in place.</p>
<p>The tax forms and paperwork can initially be daunting, and I know several people who pay to have these things done. However, I do everthing on my own, and the quarterly tax forms are set to me automatically fromthe state and federal government. </p>
<p>One thing that you need to consider is that if you incorporate you will now have to pay social security tax on your earned income, you may have to pay a state franchise fee (very minimal in my state), and you will need to pay unemployment insurance. I was able to fill out a form to opt out of workman’s comp.</p>
<p>On the plus side, you may have more opportunities to deduct expenses. </p>
<p>In my opinion, incorporating for an income of 37K would not typically make a lot of financial sense. My income is not much more than that and I don’t seem to reap the same benefits versus cost that my friends who earn more seem to have. However, from a financial aid point of view it should probably be beneficial to eliminate the problem of 200K in assets. </p>
<p>Do your homework carefully and help your daughter find FAFSA only schools, but also take a look at the different school’s “own financial aid forms” to see what information they require. Visit college board and determine which FAFSA schools meet a high percentage of need as well. With careful planning now, I think you may have some sucess when it’s time for her to go to school in Fall 2010. Good Luck</p>
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I’m pretty sure you can structure it so the income passes through without being subject to social security tax. And the business doesn’t have to have any employees, so no unemployment insurance.</p>
<p>The quick & easy way around all of this is if OP has any federal means tested benefits (any family member - anytime in 2 years prior). I actually counseled a mom who is too proud to get free/reduced lunch to DO SO in order to qualify for the simplified needs formula. $50k or less and means tested benefits = no assets counted.</p>
<p>Also, if OP counts as a displaced homemaker, that’s another way to be considered for simplified needs.</p>