<p>If a family is "house poor" (meaning little income but own the family home), and sells the house, does anyone know how this situation is generally treated by financial aid offices, particularly if the intent is to rent (and finance college) rather than buy another house.</p>
<p>Is there, for instance, a grace period of a year or two where the proceeds from the sale are not counted as income, so that a family has that time to buy another home? Or are the proceeds always counted as income for the purposes of financial aid packages?</p>
<p>We welcome anecdotes or other information on this. Thanks!</p>
<p>There is no grace period. If the family sells the house and puts that money into some kind of bank account (CD, checking, money market, whatever) or even in a box under the bed it will be viewed as an asset if it has not been spent by the day of the FAFSA filing.</p>
<p>This is not income (I believe this is correct if this is the sale of their primary residence)…but the money in the bank IS an asset.</p>
<p>I believe there used to be a two year (I think that was the number of years) of “grace” before the family would have had to pay capital gains tax on the profits from the sale of their house. In other words…if they didn’t buy a new house, after two years…they owed capital gains tax…but I’m not sure if that is still the case.</p>
<p>Proceeds from the sale of a house are not income for FAFSA, but will count as assets assuming they’re not immediately spent. </p>
<p>The tax rules changed in the 90s; there’s no capital gains tax due if the net gain on the sale is under $500,000 for a married couple, or $250,000 for a single person.</p>
<p>Yes, however the rules state that you should have occupied the house in two of the last five years or something to that effect. I think that you would qualify based on your posting.</p>
<p>So let us say you bought the house 10 years back for $100,000 and sell it today for $140,000 and you have lived in the house for the last two years (or 2 of the last 5 years), you do not have to pay any tax. So that $40,000 can be put in a bank or used to buy a car (just hypothetical). If you buy the car, then you have $0 left from the sale of the house and it will not count for FAFSA. If you bank it, then it will show up as assets of $40,000 and about 5.6% of that will count (a little more than $2000). May not significantly impact FA.</p>
<p>Obviously you do not want to squander the money, but if you need the money you should go ahead and sell the house. I do not believe that from your posting it will have a major impact on your aid.</p>
<p>Not necessarily - only if you have other assets. A set amount of parental assets is shielded from the FAFSA calculation, based on the age of the older parent:</p>
<p>^^^^ True, OP may not have assets greater than the shielded value. The house sale may push the assets beyond the shield, so we cannot say much without other facts, though the maximum impact is 5.6%.</p>
<p>Just a thought, if you are in your 60’s, you MIGHT be able to; 1) put some of that into a retirement account (amount varied by type) and draw out as needed since you are over the typical 59 1/2 minimum withdrawl age. 2) Put the funds into a ‘cash value’ life insurance account if you have the right kind. </p>
<p>Their is a good calculator at Finaid.org that you can run different scenarios with to see some hypotheticals of how it will affect you. </p>
<p>One other thing would be to try to time the sale of the house and closing so that you did not get the funds until AFTER you filled out FAFSA for that year. </p>
<p>Yes, it seems like with the schools that use the CSS Profile that each of them can consider the equity in a primary home in different ways. It is NOT cut and dried like the FAFSA. It also seems hard to get an answer on what that amount of ‘exemption’ is.</p>
<p>As to the ‘entire’ monies from the sale of a house counting as an asset, not just the ‘gain’, that would be true IF you did not pay off the balance of a mortgage at the time of the sale. BUT that would be pretty U-common to do I would think. It would typically look like this;</p>
<pre><code> 140,000 sale
</code></pre>
<p>-100,000 payoff of mortgage balance
=40,000 gain</p>
<p>Homeowner has the 40K gain in their account, not the whole 140K, as the balance (just an example here) however much it is, would usually be paid off at closing.</p>
<p>One other thought for the original poster…Have you thought of just doing a HELOC - Home Equity Line of Credit instead of selling the home? In our case, we also have a rather low income (60K or so) but our house is pain for. We were able to set up a HELOC of up to 75% of the value of our home, which is more than 2 times our annual income. Interest rate are great right now too. A ‘line of credit’ is typically better than a Home Equity ‘Loan’ as with the loan, you take possession of all the money at once, which then becomes an asset in FAFSAs eye. The line of credit you just take as you need it.</p>
<p>Yes, that is true, but djdietz says there is also the payoff balance.</p>
<p>So depending on the circumstances, the entire sale price may be considered as cash assets. If the purchase price was $100,000 a few years back (assuming no improvements) and it was sold for $140,000, the assets would depend on the mortgage balance.</p>
<p>So if there was no mortgage balance, then you have $140,000 in assets (though no taxes are paid). The funny thing here is if you did not sell the house, you would not show any assets in FAFSA (but would show in profile) as the home you live in is not considered. If you had $100,000 in first and secondary mortgages, then only the gains will matter. If you had $140,000 in mortgages (remember at one time they were giving 110% loans), then the situation is different.</p>
<p>So, 3bm103, you do have a very good point. As djdietz says you may wanted consider a line of credit against your home, but they are not very easy to obtain nowadays.</p>
<p>Does PROFILE ask for the proceeds or realized gain from a house sale? I know that it is not a taxable event in most situations, but I just want to make sure it is not something that some colleges do take into their calculations.</p>
<p>It gets a little tricky if you put the proceeds into a qualified plan, as you are supposed to be adding back any such non taxed income. An interesting thought. </p>
<p>Usually if you are selling a house, you are doing so because you have decided you want to get out of it or have to get out of it, </p>
<p>But yes, the assets do have to be reported unless you spend them all as you may if you roll the proceeds into another house purchase.</p>
<p>As noted…once the house is sold…this is no longer an “equity” issue. It is an issue of money in the bank from the sale.</p>
<p>But to answer Kayf’s question…yes…colleges use varying amounts of home equity (those Profile schools that ask for it) ranging from none to all. YMMV depending on the school.</p>
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<p>No…but the Profile schools do ask for your account balances (or money stuffed in your mattress). The Profile schools are under no obligation to use an asset protection allowance (as noted above for the FAFSA) and they are also under no obligation to assess assets at the 5.6% that the FAFSA formula uses.</p>
<p>I know there is no asset protection other than the general ones that a given college has that it uses for all assets, and the schedule that FAFSA uses. I was just not sure about how house sale income is viewed.</p>
<p>The house “sale” itself isn’t viewed at all by the Profile…only the money in the bank. Money from a house sale is not income. There CAN be capital gains if the amount is VERY high (doesn’t sound like this is the case in this situation…plus the amount is VERY high). </p>
<p>The issue is that Profile schools can use this asset money in any %age they choose to…not 5.6%. </p>
<p>Personally I think it would be better to time the sale of the house so that the money is NOT in the bank when FAFSA/Profile are completed for the first year…the BUY a new house with that money BEFORE completing the next year’s FAFSA form.</p>
<p>Timing is everything in this case…for Profile schools. </p>
<p>From what I read…the asset protection allowance for FAFSA schools might be sufficient for THIS OP.</p>