I am a disabled single mom (displaced homemaker) with a EFC of 0. This past Fall I sold my home and will be closing soon on my new primary residence…re-investing all the money made from selling. I made about 85K on the sale. Will this show up as income on my FAFSA and mess up my EFC for this next year? Thank you for any help and advice out there!
When are you buying the new house? I don’t believe money from the sale of your house is considered income. If your EFC is $0, is that an auto $0, because if so, your assets are not reported on the FAFSA either.
Two sources I looked at stated that a nontaxed gain on the sale of the personal residence must be included on the FAFSA.
If so, you could request professional judgment from the school.
@thumper1 The EFC wouldn’t be zero with $85k of nontaxed income.
IRC Section 121 could exclude the gain from federal taxable income but it looks to me like it is included for FAFSA (nontaxed income).
I’m not saying you are wrong…but lots of people buy and sell houses during college…and I’ve never heard of this being included on the FAFSA as untaxed income.
@kelsmom…hoping you can clarify this.
It is not income, so it’s not reported. If it is on the 1040, it gets counted in AGI, although you could ask for PJ to remove the money if another house is purchased with that money.
But … if you really are Auto 0 EFC, you could have a million dollars in untaxed income & a million dollars in the bank … and your EFC would still be 0. You would probably have to file a 1040 (not 1040A or 1040EZ) in such a case, though, so you’d have to qualify for Auto 0 by either having someone in the family who received federal means-tested benefits in the past 24 months or be a dislocated worker.
Thanks Kelsmom. Would this disabled, dislocated homemaker be considered a displaced worker?
Why would the money need to be “removed” if used to buy another house? I woild think it would need to be removed from consideration as an asset if NOT used to buy another house before FAFSA filing. But then again…with auto EFC…assets aren’t counted? Right?
Basically, what I mean is that if the money is on the 1040 & making AGI high, you would want to ask to have it removed from the AGI. If the money is in the bank account at the time you file the FAFSA & but will be used to buy a house, you would want to ask to have it removed (you’d be asked for proof of the purchase of the house & proof that money went into the new house). If you are not using it to buy a new house, you are still better off having it as an asset & not in the AGI. I don’t know the IRS requirements, so maybe it’s never on the tax return (I’ve lived in my house more than 26 years!). The bottom line is, it will be an asset, not income.
But … yes, if it’s auto 0 EFC, it won’t ever come into play. I would think a disabled, dislocated worker would qualify, but I don’t know the individual circumstances. https://fafsa.ed.gov/fotw1516/help/fotw91h.htm .
but is this a capital gain if it is reinvested in another home…or is under the lifetime amount for capital gains?
Plus…@kelsmom said that if this is auto $0 EFC, no amount of untaxed income comes into play on the formula. Only actual income from the tax form. And this woild not be income on the tax form right?
If you buy your personal residence for $200,000, make no improvements, and then eventually sell it $285,000 net, you have capital gain income of $85,000. Whether or not its invested in another house, it is still capital gain income. Then refer to IRC Section 121 for the rules on excluding the gain from taxable income.
What is a lifetime amount for capital gains? What does that mean?
ETA: Under the old law, there was a once-in-a-lifetime over age 55 exclusion of $125k.
I thought folks could sell a house, and not have to report capital gains now…like they used to have to do in the olden days. But I thought there was a dollar limit on the amount for their lifetime…
This:
Yes, you can sequentially sell your personal residence after personal residence and exclude capital gain from income subject to assorted rules, but no lifetime limit.
It won’t be on your taxes as it’s not income. It won’t be in your bank because you are closing soon on another home. It will be a non event in financial aid.
People buy and sell houses all the time without it being a taxable event and even while their kids are in college. Don’t worry about it. Make sure you close before filling out the FAFSA forms so you don’t have a big asset sitting in your account, although as Kelsmom says, if you are an automatic $0 or a simplified assets qualified family, it won’t matter.
It’s still an untaxed capital gain. Why wouldn’t the guidance that Madison85 copied in post #8 apply?
Auto 0 means that the EFC is 0, so the untaxed income is ignored (it isn’t even requested, based on skip logic).
Oh my! Thank you so much for all the interest and responses for my situation! I definitely will be closing before filing…ideally in early January but could do some cartwheels to make it happen in December if it would make it draw less attention to itself for FAFSA reasons. I do get to skip the asset reporting section so I guess I am what you call an Auto EFC 0, but wondered if when I upload my IRS info to the FAFSA, it would flag me because of that gain and count it all as income…hence my initial question. What I am hearing from you all, while you are not in total agreement, is that worst case scenario I would ask for a Professional Judgement and/or that the capital gain be “removed”. Are these both one in the same thing that I contact my son’s school about if/when it came to that? Or is the “removing” something that has to occur with another entity prior to filing? I am going to take the advice not to worry about it (thank you) because you all have helped alleviate my worst fear which was that my son would lose his scholarship for the year and there would be no ifs, ands or buts about it. I had not heard of a PJ if it would ever come to that. Thanks again, all, for spending some of your Saturday on me!
The gain won’t be on your federal tax return if you qualify for the IRC Section 121 exclusion.
How many years have you owned it?
How many years in the past 5 have you lived in it as your principal residence?