Welcome to College Confidential!

The leading college-bound community on the web

Sign Up For Free

Join for FREE, and start talking with other members, weighing in on community polls, and more.

Also, by registering and logging in you'll see fewer ads and pesky welcome messages (like this one!)

As a CC member, you can:

Is inheritance considered income?

StacyshopStacyshop Posts: 3Registered User New Member
Is a cash inheritance considered income, as far as FAFSA is concerned?
Post edited by Stacyshop on

Replies to: Is inheritance considered income?

  • Muffy333Muffy333 Posts: 2,061Registered User Senior Member
    If you inherit $10,000 in 2007 it is not income for 2007. If you leave it in your bank account and it is there when you fill out FAFSA it is an asset. And any interest it generates in 2007 is income to you. For FAFSA purposes, if you're the student, you might want to not have it in your bank savings account when you fill out FAFSA (student assets are assessed for college availabiity at a higher rate than a parent asset), so depending on how much it is, when you're filing FAFSA, there are things you might want to do with it.
  • StacyshopStacyshop Posts: 3Registered User New Member
    Question on Worksheet B asks:

    "Did the student (and the student's spouse) receive any of the following items in 2006?"
    .......
    12. Money received, or paid on the student's behalf (e.g., bills), not reported elsewhere on this form.

    So even if u spend your 10000 before filling out the FAFSA, you still have to report it right??

    Thanks
  • Muffy333Muffy333 Posts: 2,061Registered User Senior Member
    I believe line 12 is asking for money that was paid to satisfy bills you incurred. For a high school senior, this would typically be zero. An example would be if your employer paid your internet connection fee, or your grandmother paid your electric bill. The IRS does not consider an inheritance income, so don't consider it income for FAFSA.
  • goaliedadgoaliedad Posts: 2,199Registered User Senior Member
    A side note about inheritances...

    If you received an inheritance such as an annuity or even a CD, some of that money may be considered dividend or interest income in the year it was earned or withdrawn. With annuities, typically the deferred interest becomes payable on the death of the original owner and that amount becomes income to the beneficiary (you) in the year the original owner died. If that annuity had been held a long time, potentially the majority of that payout could be considered income. The insurance company (or other institution) who held the annuity will issue a W9 (IIRC) with that information.

    With a CD, the interest accrued up until the time of death may be (depending upon the specific terms of the CD) income to the original holder with interest paid after death being income to the beneficiary. The bank (or other institution) will issue 1099's accordingly.

    Please consult the financial institutions holding that are paying out the assets to get an estimate of this type of interest/dividend that may come your way for your FAFSA filing. It could materially affect your aid estimate.
  • dt123dt123 Posts: 1,178Registered User Senior Member
    Whether an inheritance is reportable as income in the year received is a contentious topic. See http://talk.collegeconfidential.com/financial-aid-scholarships/235564-how-does-inheritance-change-financial-aid.html Some people would disagree with what Muff says in the last sentence of #4.
  • goaliedadgoaliedad Posts: 2,199Registered User Senior Member
    From the discussion in the link above, I would say that you have to be careful in how you categorize any inheritance. If the form says (even in the fine print) inheritances are considered in the box with other income, I might suggest that, in the case above that the portion of the annuity that is considered taxable income be put in the taxable income box with the remainder of the principal being put in that box with "other income". If you were to put the taxable portion of the annuity in both boxes you would be assessed (from the FA review) on that same money 2x as income and once as an asset, clearly not the intent of the form. By distributing it according to its taxability, you eliminate the 2nd assessment of the money as income.

    While I don't agree with the policy of assessing an inheritance as both income and an asset in the year received (double taxation IMHO), unfortunately, from the links in the abovementioned thread, it looks to be the case.
  • StacyshopStacyshop Posts: 3Registered User New Member
    Well this is right from the FASFA form...
    "Did the student (and the student's spouse) receive any of the following items in 2006?"
    12. Money received, or paid on the student's behalf (e.g., bills), not reported elsewhere on this form. "

    So i mean, what DOESN"T that cover? How can anyone not report inheritance with a question as direct as that one? I mean whether we're talking bout asset or income or whatever, the question seems pretty all-inclusive??
  • Jugulator20Jugulator20 Posts: 230Registered User Junior Member
    Stacyshop: the dt123 post # 6 above references an earlier discussion about this subject. This earlier discussion includes, in part, my opinion about why inheritances should not be reported as income (as assets, yes). It is a very big deal as to whether an inheritance is reported on FAFSA as income or an asset when student aid is calculated (and even worse if you list it as both income and an asset). In my opinion, inheritances are assets.

    The FAFSA line you cite states, in part, Money ?. not reported elsewhere on this form. If you properly report the inheritance on the appropriate parent or student asset line, then you would not include it here as well.
  • dt123dt123 Posts: 1,178Registered User Senior Member
    The conflict arises from the fact that inheritances are not subject to federal income tax. They are excluded, not because they are not income, but because Congress chooses to tax them under a differently-named tax. Inheritances are excluded from the definition of gross income in the income tax code, and subject to a different tax, the estate tax. Gifts similarly are excluded from gross income, and subject to the gift tax.

    I'll repeat: Congress had to exclude inheritances and gifts from the definition of income for income tax purposes. Why? Obviously, they would be income if not excluded.

    Many feel that the specific, stated exclusion of inheritances and gifts from the federal income tax is a really good reason to exclude them from income for FAFSA and Profile. Even though inheritances and gifts obviously are family income in the ordinary meaning of the word "income." And even though nothing in the law or regulations for federal financial aid, or in the College Board Profile instructions, tells you to exclude them.
Sign In or Register to comment.