<p>Here it is my situation, my primary resident property worth about 400K, and I paid off about 290K, then took out about 150K home equity LOC, I like to use those money to buy a rental property, but I have concern about how it will affect the financial aid in the future (my elder kid is 12 this year, about 6 years away from college).
As far as what I knew, there are two parts,
one is asset, I need to report this rental property as asset, since I am pay by cash (cash is from HELOC), will this consider a 150K asset, or it will be counted as 150K - HELOC balance, or any other formula
the second part is the tax deductable, by my understanding, this will the rental income minus the rental expense.
Any one has any idea, any suggestion, the last question is, if I like to buy one bigger property (worth more than 300K) with my relative, will it become a good idea to share it, or it won't be a good idea, since it hold more risk.
Appreciate for any reply.</p>
<p>For FAFSA - the equity you have in the rental is counted as as asset. Since you don’t have a mortgage on it, the full amount would be counted (using a HELOC to buy it doesn’t count as debt against the rental property). One strategy would be to take out a mortgage on the rental and pay down the HELOC on your primary residence, since equity in your primary residence is not counted on FAFSA. This has other tax implications. The income side is that whatever falls through from schedule E gets added (or subtracted if it is a loss).</p>
<p>For CSS Profile, the equity in the rental will also be counted as an asset. Equity in your primary residence may or may not be counted, or some might be counted. It varies from school to school.</p>
<p>On the income side, some people think that when your CSS Profile form gets evaluated, schools will remove some deductions like depreciation and who knows what else. This raises the income from the property for CSS Profile purposes.</p>
<p>If you buy a rental property with a relative (or anyone else), you would report your proportional share as an asset, and your proportional share as income.</p>
<p>As said above, rental properties will affect aid.</p>
<p>however…</p>
<p>aid is often more largely affected by INCOME. Your income may be too high to qualify for much/any aid…even without the rentals.</p>
<p>So, before doing any financial gymnastics, determine what your “family contribution” would be based on income alone.</p>
<p>And…you need to know…most schools do NOT meet need, so you may have to pay a lot more than your EFC anyway.</p>
<p>If your child will be attending FAFSA only schools and your income is beyond Pell awards, then you may get very little help, no matter how expensive the school is.</p>
<p>FAFSA EFC is about 22-33% of your income - not counting assets (incomes over $100k often have EFCs of 33%). So, if that’s too much, then that will be your bigger problem.</p>