<p>First let me say that we can't afford our very minimal EFC due to medical issues. Our D has enrolled in a meets-full-need college that she loves and we are racking our brains to figure out how to come up with $7k per year so she can attend. Digging around in the basement for stuff to sell, etc...</p>
<p>(Yes, we have tried to get the FA office to refigure the EFC for the medical expenses but it's not happening.)</p>
<p>We own a boat. We built the equity in it with a whole lot of sweat and it was to be our escape pod for retirement (not that we have any retirement savings!!) We are realizing that selling the boat may be the only way we can send our daughter to college. It was a tearful decision but we felt pretty good about it once made. However, then I realized that it might not be the answer, because won't the income from selling it count on the FAFSA/CSS and therefore massively decrease the need-based grant she's been awarded?</p>
<p>Is there any way to sell something like this - a car or boat or art or family heirloom antiques- and perhaps put the proceeds immediately into a 529 so that it won't count as income and raise the EFC? Since it's not counted as an asset to begin with, it seems really unfair that selling it would have that effect. but I am realizing that there isn't much fair about the whole financial aid thing, anyway....</p>
<p>Why would anyone have to report the sale of any possession? I sell my jewelry, I’m not going to report it. There are sales tax rules and sales as a business rules that come into play when you profit from selling items, but if you sell your car, your bicycle, your furniture, that doesn’t enter the picture. There are specific rules for some items like the sale of a house or investment vehicles where the realized gains are reportable as income, but a boat? Even if reported as an asset, which some schools do require for large assets like boats (?), cars, it’s the GAIN that is reported, not the entire proceeds regardless of what you do with the money. In such cases, it doesn’t matter if you put the money whereever. What you can do is put the money into a protected fun and THEN sell it, which would then, yes, protect any gains. </p>
<p>I don’t see any problems here and you don’t have to put it into a 529. Any one see this differently? </p>
<p>I hope you are right! I think, though, that since the boat is a documented vessel, we need to declare the sale to the IRS and pay taxes on it. Right? </p>
<p>Although, the issue of the gain is interesting. This was a fixer-upper situation and we have a lot of money, and materials into it. It would not be difficult at all to show that we have atleast as much (if not more) invested in the boat than we will sell it for. (That’s unfortunately the nature of boats!)</p>
<p>I guess this is kind of a tax question, too, then. Ugh.</p>
<p>So forgive my ignorance about financial matters… but a quick googling makes me think that this would be a “capital gain” for tax purposes if we were selling for more than we bought it for… but since we have so much invested in it it won’t really be a gain at all (probably actually a loss, but boats are exempted from capital gains losses.)</p>
<p>So presumably there is some tax form where you state the selling price, and also the original purchase price plus renovation costs, to show no gain, right?</p>
<p>And then, if there is zero gain… it would have no effect on the FAFSA or CSS, right?</p>
<p>I hope this is true. This might mean D can go to college.</p>
<p>staceyneil, there are financial advisors/tax experts that specialize in financial aid issues. I’ve worked with one a bit, and she was an amazing font of expertise. I have no idea what the answer is to your question, and you’re very likely to get the answer here - but if not, you could probably do a quick consulatation with a pro, and hopefully get the key to making this work!</p>
<p>One thing you need to consider. Any assets over the asset protection allowance that remain in your account when FAFSA time comes NEXT year, will be used in the calculations. There IS an asset protection allowance for parent assets, however. This varies depending on the age of the older parent. </p>
<p>I believe that even in a 529, this will still be reported as a parent asset next year, if there is money remaining from the boat sale.</p>
<p>Just make sure it’s in the PARENT name and not the student.</p>
<p>So if you sell a car for more than you paid for it, you have to report it as a gain? Not that I ever have. But how much profit did you make on that boat after all of the expenditures you put into it? Even with a house, you can bring down the profit with certain work you put in. You had better talk to a tax person about this one.</p>
<p>When was the last time that you sold a car for more than you paid for it? Unless it’s a collectible or a rare model, it’s very unlikely that a car (or a boat, for that matter) will appreciate in value, if both the purchase and sale prices are a close approximation of true market value.</p>
<p>This is a tax issue, IMO. If the tax advisor says that the sale of the boat resulted in reportable gains, that need to be reported on the tax return, then those very same gains have to be reported as INCOME on the fin aid forms that year, regardless of where the proceeds of the sale went. It’s no different than selling any investment item for a gain. If there is a huge gain on the item, so there is a lot of money there, it can be put into a 529 or whereever, and it will still be reported as a parental asset which will be hit up around 5.6% over the parental protection allowance. The proceeds are not what are counted as income, by the way, but actual gain, profit is. How that is calculated, with expenses in fixing it up, money put into it, has to be researched. Just as a house sold at a profit can have certain expenses, renovations, upgrades, added to its basis to reduce the capital gains. </p>
<p>At what point anyone has to report the gain on the sale of any personal property other than a house or a defined collection or if this is a business, for tax purposes is something I think that needs to be discussed with a tax expert. Once reported on the tax forms as a capital gain, yes, it becomes income for that year for FAFSA and PROFILE purposes. But at what point one has to report gains on anything one sells, I don’t have any idea. I don’t think I’ve made much of anything, maybe nothing in selling anything I own, so it’s never been an issue. </p>
<p>Thanks for all your replies, folks. It is very helpful to have this forum! I have done some more research based on your input and will double-check with a tax advisor. But it does appear that we will have zero gain (or even a loss) since we have invested a significant amount in the boat over the last few years in addition to the original major rebuild and purchase price.</p>
<p>It is going to be an incredibly difficult and emotional thing to sell this boat (it was purchased in order to “live the dream” following a major cancer diagnosis when I thought I would not be around much longer, and we lived aboard it for 2 years when D was young…) but I believe that it may be the wisest thing at this point. I do not want my D to graduate with more than the $33k federal student loan debt…</p>
<p>You get that money and pay the school straight away and any other bills so there isn’t anything of that windfall left on fin aid filing day, and it doesn’t count. You stash it in a 529 or parental accounts and it’s assessed as a parental asset. Be aware that the 5.6% is just the FAFSA percenage towards EFC. Schools using their own calculators and formulas are not stuck with that.</p>
<p>@cptofhtehouse Thank you for clarifying about the 529! We will have to figure that out. Whenever the boat sale happens (and it’s not the sort of thing that can be timed to occur when planned) we’ll have 4x the annual amount due. I doubt colleges let you pre-pay your family contribution for future years, do they? We will have to figure out whether putting it in a 529 affects the FAFSA EFC worse than something else, such as paying down our second mortgage (a home equity line of credit that we could then borrow from for future years.) I guess I could run the various numbers through the college’s net price calculator to see what works best.</p>
<p>It is a too bad that parents have to think this way and shuffle things around. We’re in the same financial situation any way you look at it, so it shouldn’t matter where the money is on a given date! I mean, I understand why the rules are in place and perhaps its the best system overall, but it seems unnecessarily convoluted, at least in this specific situation.</p>
<p>For colleges that use FAFSA only, not PROFILE or a supplement asking for home equity, the value of the primary home is not included in assets, so yes, paying down the home equity would be a good idea if your DD is in such a school. If there are other kids who will be going to school in the future, then it may still shelter some of the assets as some schools that include it cap the amount. Regardless, it’s a parental rather than a student asset, so it would be so treated. </p>
<p>I don’t know about prepaying schools that many years in advance.</p>
<p>If you are using the boat as a rental have you been declaring the income and taking the expenses? If so any gain or loss would be reported on your tax return. Please do check with a tax advisor before you do anything.</p>
<p>@Pepper03 Thanks, we have been doing the taxes properly for that self-employment income. We have not set it up as a rental like you would a home, though, and have taken no depreciation on the boat itself. The boat is not an asset of a business, in other words. (it is primarily for our own use and the extra income has been sporadic so we’ve treated it as self-employment income but not an actual business.)</p>
<p>This student is planning to attend a school that meets full need for all. That means the school either uses the Profile, or their own form (Princeton uses its own form). </p>
<p>Paying down home equity might NOT be a good plan for the OP, depending on the policies of the college regarding home equity calculations for need based aid. </p>
<p>Ask the financial office if they cap home equity to income, and what percent of home equity they take towards the parents expected contribution and if it’s the same as with any assets. </p>
<p>Some school do not take home equity in the equation, some take the full home equity into account. Some also cap the home equity by multiples of income which is NOT the case with other assets. So if we are talking $200K sitting in cash//investments vs $200K towards home equity, the full $200K will be hit by the asset percentage over parental protection allowance whereas at some schools they may cap the home equity by income and if income is, say, $60K a year, then that’s what the cap the value of the house at. Even at 2.4X income, , the $144K is less than the full $200K. Just ask if the home equity has caps or is otherwise given some preferential treatment over assets sitting in any other kind of account.</p>
<p>Thank you all.
We are right now looking for ways to avoid this whole scenario. I have a small additional job I’ve taken on. It may be enough to scrape by this year. If so, we’ll likely have to revisit this scenario in the future. Sheesh it is so stressful!</p>