Joy000

We inherited half of my father's house, my brother owns the other half and wants to sell it. If we sell it, the money will count against our hopes of financial aid. Would it be better to rent it out until my son graduates college?

hoosiermom

You need to do some calculating to determine which choice works better for you. You are concerned about how the proceeds from a sale will increase your assets and thus increase your EFC and that is a valid concern. However, if you rent it you will have rental income that you must claim and the value of the house must be included in your declared assets.

happymomof1

Or you can sell it, and have your son take a gap year while you work out the most appropriate way to invest the money.

CTScoutmom

If you keep it, you still have an asset which will count toward calculating your financial need. If you sell it, you have potential income, which is hit harder than the asset, but you must consider the basis of the property vs. the sales price.

What is could you sell the house for today? That is the fair market value, and the value as an asset.

What was the value of the house on the date of your father's death? That is your basis.
If you sell, take the sales price, subtract the basis and the cost of selling (commissions, for instance), and what remains (if anything) is your capital gain. That is the income you would report.

You stated your other option would be to rent it out. If you do that, you will have rental income, offset by rental expenses. Since you inherited the house, I'm assuming the primary expenses will be property taxes, resulting in a rental profit (income). You will be required to claim depreciation, which will reduce those profits, and maybe even cause a paper loss. While that would result in a lower EFC, it would also reduce your basis, and results in a corresponding bigger gain when you sell the house. If you are likely to sell any time before your son graduates, it will result in a bigger EFC then. If your brother has kids, are you prepared to keep the house until all of his kids graduate as well?

In a nutshell - you already have an asset. Renting it out is more likely to impact your EFC than selling it. Selling it provides you with a liquid asset that can be used to pay for college (at about 5% per year).

cptofthehouse

As CTscout says, it's a done deal--you have the asset that you have to report on the FAFSA. What you net out in sales will be the increase in income the year you sell it but to offset, you won't have the house sitting there as an asset anymore. If you sell it at a loss over the market value at the time of your father's death, you actual get a realized loss.

You need to the numbers, including the financial aid considerations and also family and personal issues, and decide which way to go.

mom2collegekids

Whether you sell it or rent it out, it will affect your FA.

Right now, you have to declare half of the value of the house as an asset...the same way you'd declare it if the money were in the bank. If the house is worth about $200k, then about half of that is a $100k asset for you. If you were to sell it, then that same $100k would be in the bank....both ways a big asset that affects FA.

Also, if you were to rent it, not only would you count half the value as an asset, but you'd also have to declare half the rental income as income...a double hit.

notrichenough

Are you dealing with a FAFSA-only school or a profile school? They will treat the house a little differently.

For FAFSA, only what is on Schedule E will affect your FA. With depreciation, taxes, insurance, utilities, and other expenses, it is likely that the property will show little or no profit on schedule E. A loss will actually reduce your income for FAFSA, lowering your EFC.

For CSS Profile, they may add back in certain expenses, like depreciation. Depending on the value of the property (what is the value of the property?) this can be a pretty big hit. They may just not allow you to take a loss.

Both will count the value of your half of the house as an asset, and up to 5.6% of the value will be added to your EFC.

If you sell it, you will show little to no income because (most likely) you received a stepped-up basis to the fair market price when you inherited it. When you sell, your profit (price - basis) will be close to, if not, zero. So selling should have little if any effect on your FA.

There is some debate about whether receiving an inheritance counts as "untaxed income" in the year you receive it. Since this is not explicitly addressed in the FAFSA instructions, my personal opinion is to use the IRS definition of income, which does not count inheritances as income. So there is no added income due to the inheritance, only increased assets.

beolein

I'm sorry for your loss.
Don't forget your brother. Would you rather have a little less money for college or lose your brother to a fight over a house?
Also, if there is still a mortgage to be paid, note that non-payment reflects on both owners' credit records no matter the excuse.
Finally, renting out a house requires a lot of work and money.

truckinusa

I think there are ways to put a piece of real estate in a IRA for a fee thru certain companies. I believe u could put the cash you get from a sale and it won't be counted as an asset or interest income when its placed in an IRA.

notrichenough

You can buy RE through a self-directed IRA, but it has to be with money already in the IRA, and it has to be a completely stand-off transaction - you can't sell a property you already own to the IRA.

Since the OP already owns the house, this option will not work.