<p>If you decide to treat the condo as a rental dwelling instead of a second home, there are pluses and minuses.</p>
<p>Pluses: everything gets pushed onto schedule E, which means all expenses will be deductible - mortgage interest, taxes, condo fees, insurance, repairs, depreciation, etc. This will lower your income tax bill.</p>
<p>If you are not itemizing your deductions (schedule A), this may be the only way to get the tax advantages, unless the interest + taxes are enough to push your deductions higher than the standard deduction amount.</p>
<p>Minuses: You will have to charge a market rent for this to pass muster with the IRS. You will have to pay taxes on the income. You will have to file 1040, schedule E, and some other forms. You will have to figure out depreciation. You will have to pay capital gains on the recaptured depreciation when you sell. Whatever exists for tenant/landlord law in your area will now be applicable to you (this could involve licensing fees, inspections, who knows what).</p>
<p>For FA purposes, if you are filling out the Profile, you could take a hit. A school may/will probably disallow some of the deductions on your schedule E (depreciation especially). These disallowed deductions will be “taxed” by the school at a much higher rate than the income tax rate you are paying.</p>
<p>A Profile school could conceivably disallow a schedule A deduction for interest and taxes as well for a second home, I suppose, if they can tease that number out of your tax return.</p>
<p>If your mom can contribute to the costs, the best scenario might be to treat the condo as a second home, and have whatever contribution your mom makes go into a 529, which is only assessed at 5.6% of the year-end balance. At least until you are done with college.</p>
<p>Just thinking out loud…</p>