<p>We have a rental property that we've been holding on to with the idea that its equity would help fund our kids' college costs. We are getting close to having kids in college now, and trying to make decisions about it, and I welcome any input, "heads up" items, etc. In general, income vs. expenses/mortgage payment are generally a wash right now, but depreciation expense helps our tax return.</p>
<p>I believe that we want to avoid selling the property during the financial aid years, as we will have to report capital gains and recapture depreciation, which will be reflected in AGI and thus affect financial aid. Is that correct?</p>
<p>One idea is to refinance it and get out as much cash as we can to use towards college costs (we'd be limited to 75% of its value at this point), and then sell the property at the end of the college years to help cover any additional debt incurred along the way. Is that reasonable? With the low interest rates right now, our payment would go down maybe $200 per month, which is not significant, but we'd also have the cash available.</p>
<p>Would treatment of the property be handled much differently between FAFSA schools and CSS schools?</p>
<p>Any other thoughts or ideas?</p>
<p>Thanks in advance!</p>
<p>You should run your numbers through a FAFSA calculator online under various scenarios. I do not know what your income is, but it’s possible (likely?) that you would not be eligible for any federal aid anyway. Besides, there isn’t that much federal aid to be had, even by the neediest students.</p>
<p>The CSS Profile schools are a different thing, and there is no standard formula for how need is calculated. All the Profile does is collect financial information. Colleges then use that information according to their own financial aid policies. It’s hard to know the effect of any piece of information at a given school.</p>
<p>A couple of things.</p>
<ol>
<li>Any equity in your rental property is viewed as an asset.</li>
<li>Any rent you take in is viewed as income.</li>
</ol>
<p>Yes…there is depreciation on rental property etc each year and this does impact your taxes in the end…I’m not sure how much or IF it would have any impact on the financial aid formulas. </p>
<p>For the FAFSA, you will use the figures on your taxes. I haven’t had rental property in decades, but I seem to recall a form we completed that had both income (rent) plus any expenses…and then our bottom line which was usually not much of anything in the “income” column. Of course YMMV depending on the income your rents generate.</p>
<p>HOWEVER this has nothing to do with the value of the property. You would use this value minus the mortgage to determine the equity and this IS reported on the FAFSA as well as the Profile.</p>
<p>NOW…if you refinance and put the money in a bank account (or even in your mattress)…that money in the bank is an ASSET and depending on the amount, it is also assessed for financial aid purposes.</p>
<p>Rental properties and the Profile schools are another whole story. The schools may or may not allow the business expenses as part of their calculations. In other words, they may view your rental property income as just that…income…YMMV by school.</p>
<p>The other thing I would suggest you do is run an online financial aid calculator using BOTH scenerios you describe above (keeping/selling the rental property). See if there is actually a substantive difference in the guestimate of your family contribution. Sometimes families go through this exercise and realize that regardless…their kiddo still will have a very similar family contribution. That family contribution is MOSTLY based on your income. Assets contribute a far lower %age towards the need based finaid calculation than income.</p>
<p>And lastly…if the schools don’t meet full financial need…all bets are off.</p>