Rent out my only house

For some reason, I had to rent out my only house,then rent in another house in another city. I have no idea there is any impact to apply financial aid for my kid. Do I need to move back?

Appreciate for any inputs.

Unless the home you own is worth nearly $1M or more, it may not factor much in your FinAid. Most likely, the most important factor will be your overall yearly income.

I have been considering something similar myself, and this is what I understand.

  1. If you are renting out your original home, and there is a positive cash flow, that has to be reported on your taxes and counts as income, which the colleges asses fairly heavily re: financial aid.

  2. If you are living in your house, then it is your primary residence and the home equity you have is protected in many (but not most) instances because all FAFSA-only colleges, and some CSS-profile colleges, ignore the home equity of your primary residence. Other CSS-profile schools will vary in how much of that home equity they assess – from 1 x your income to full home equity (assessing full home equity is relatively rare). However, in your situation, your house is not currently your primary residence so I think that all colleges (including the FAFSA-only colleges) will treat your entire home equity as a reportable asset. Assets are assessed at 5.6% – so each $100,000 of assets you have (including the equity in the house you aren’t living in) will likely result in a “loss” of $5,600 in financial aid that you might otherwise receive.

Remember that income is reported on a prior-prior year basis, but assets are reported as of the day you fill out the financial aid forms.

Your best bet is to run the Net Price Calculator on various college websites that you are interested in multiple times, using data from the different scenarios you are considering.

When you apply, you can include any special circumstances related to your situation on the special circumstances of the CSS Profile (if relevant), as well as potentially appealing any financial aid award you are given to explain any specific, unique circumstances.

Tagging @kelsmom , as she is extremely knowledgeable about financial aid aid and can correct me if I have made any incorrect assumptions.

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I really appreciate your help, MMRose. Your every single word is exactly what I wanted.

I plan to move back, so how long I need to stay in my own house again to be considered as a primary residence?

In OP’s case, the home being rented out would be considered a rental property and therefore an asset. This is because the regulations state that: “rental property (includes a unit within a family home that has its own entrance, kitchen, and bath rented to someone other than a family member).” So if the whole house is rented out, the whole house is an asset. The income from the rent is required to be reported on your federal tax return, so it will affect you that way. And it’s correct that assets are current, while income is prior-prior year.

If you move back into your house before filing the FAFSA & are no longer renting it out at that time, the home is no longer reportable as an asset.

@ Kelsmom isn’t just the equity considered an asset?

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Note that the prior-prior rule for income means that income that you already earned from the house rental (if any) will have to be reported to the colleges. So for academic year 22-23, you will be using your 1040 for calendar year 2020. For academic year 23-24, you will be using your 1040 for calendar year 2021. This is the income that you would be reporting on your 1040, via Schedule E, and I think that it should be able to be offset by allowable expenses (see 1040 Schedule E for those expenses).

If you had income from your house in 2020 or 2021, but have moved back to that house and the income has also stopped, you may be able to explain to the colleges that you no longer have this income source, and they may decide adjust your financial aid package accordingly. They don’t have to do this, but you can ask.

Equity on a rental (or the portion of a primary home that is being rented) is an asset. Equity on a primary home that one lives in is not an asset for FAFSA, but it may be for a school requiring CSS Profile.

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