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own a 2 family house, FinAid consequences living there or not? Advice please.

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Replies to: own a 2 family house, FinAid consequences living there or not? Advice please.

  • sylvan8798sylvan8798 Registered User Posts: 6,421 Senior Member
    Clear............
  • notrichenoughnotrichenough Registered User Posts: 8,449 Senior Member
    Just because you are using the fridge in a rental property doesn't mean it is no longer personal property, it just means you can depreciate it. Well, maybe that depends on if you use an LLC or trust or whatever to hold the ownership. I don't.
    However, the value of the rental in the Assets section of the profile would include the appliances.
    Replacing a fridge with a new one that costs $500 does not magically increase the value of the entire building by $500. It is not a zero-sum game. In fact, I don't really think it changes the value at all, unless maybe there was no fridge there before.

    I can't even count how many mortgages and refi's I've been through, each with their own appraisal, and never once has the condition of the appliances been a specifically-identified factor in adjusting the value. You are talking a fraction of one percent of the total value. It is not possible to be that accurate on an appraisal.

    So, in my opinion, if you spend $500 in cash on a new fridge, it lowers your countable assets for FA purposes by $500. But if you want to add the $500 to the value of the rental, feel free. I wouldn't.
  • sylvan8798sylvan8798 Registered User Posts: 6,421 Senior Member
    So, in my opinion, if you spend $500 in cash on a new fridge, it lowers your countable assets for FA purposes by $500. But if you want to add the $500 to the value of the rental, feel free. I wouldn't.
    I'm not seeing the difference between "lowering your assets by $500" and "lowering your net income by $500"? Except wouldn't it only come off my assets if I hadn't spent the $500 elsewhere (groceries, say) and still had it in an account or something?
  • momofthreeboysmomofthreeboys Registered User Posts: 16,181 Senior Member
    You guys lost me a ways back and I have rental property. A $500 fridge is a $500 fridge. It's $500 out of your pocket. It doesn't add to the value of the rental asset and you can depreciate it or not depreciate it, expense it or not expense it. $500 out of your savings on the day before you do your finaid paperwork probably isn't going to chance your EFC for FAFSA or mean anything much to a profile school. You're not lowing the asset of the rental property by putting in a fridge and probably not increasing the value of the property. Calling savings/checking assets is a stretch....like sylvan say's it could be $500 in groceries or $500 to a medical office or $500 to fix your car. It's $500 you have one day and don't have the next.
  • sylvan8798sylvan8798 Registered User Posts: 6,421 Senior Member
    I think what notrichenough is saying is that the school doesn't care what you spent the $500 on, even if you had to spend it on a refrigerator for your rental. The whole thing isn't that consistent since if the depreciation is the only thing they add back in, then they would allow for expenses such as advertising, cleaning, paint, and so on. In such a case, the depreciation DOES represent money you actually spent, just that they don't want to count that. And of course, the school can count or not count whatever it wishes.
  • notrichenoughnotrichenough Registered User Posts: 8,449 Senior Member
    It's $500 out of your pocket.
    Yes, which means you report $500 less in assets when you will out the FA forms. Your assertion that "Calling savings/checking assets is a stretch" is false, there is a line on the FA forms in the assets section for the balance in your savings/checking account on the day you file the form. It is absolutely an asset.

    The tax code lets you deduct the value of the asset used in a rental from your income over time via depreciation. Profile schools may or may not let you do this, by adding the depreciation (or some part of it) back into your income. They may also add back in other expenses you've claimed such as mileage or repairs costs or who knows what else, the schools don't say. It's their money, they can make up whatever rules they want.

    Yes, $500 in assets makes very little difference in FA - $25-30. $500 in income can be worth $250 or so, still pretty small in the grand scheme of things.

    The killer is when the depreciation from the actual buildings gets added back in. I just went and added up the depreciation I claimed last year, and it was north of $40,000. This could add $20,000+ to my Profile EFC if it was all added back in. If the school disallows other expenses, it would be even higher.
  • momofthreeboysmomofthreeboys Registered User Posts: 16,181 Senior Member
    I see. Yes I agree if you have a large depreciation amount and they add it back in it could make a large difference. We don't come near $40,000 of depreciation because our basis is quite low in our units so I probably didn't notice if they added depreciation back in or not with #2 son. In the past just opening the letters has made be prostate with grief. I'l have to pay attention this year to the finaid letters since #3 is applying to all profile schools. Even our state flagship is Profile which is unfortunate.
  • sylvan8798sylvan8798 Registered User Posts: 6,421 Senior Member
    Yes, which means you report $500 less in assets when you will out the FA forms.
    Yeah, but as we pointed out that's only true if you would have otherwise had that $500 in a savings account or something. If you would have spent it on groceries then you really don't have $500 less in assets. You said yourself that schools don't give a rat's patootie what you have to spend the money on.
  • notrichenoughnotrichenough Registered User Posts: 8,449 Senior Member
    If you would have spent it on groceries then you really don't have $500 less in assets.
    I guess I am not understanding your point, because this doesn't make sense to me.

    If you have $500 you can spend, and you haven't spent it by the day you fill out the FA forms, you have $500 in assets to report. It doesn't matter if it is in your savings account or cash in your pocket.

    If you spend the $500 the day before you fill out the forms, whether on groceries or a fridge or paying the plumber or whatever, you have $0 to report.

    If you spend the $500 the day after you fill out the forms, you've reported $500 in assets on the forms.
  • sylvan8798sylvan8798 Registered User Posts: 6,421 Senior Member
    I guess I am not understanding your point, because this doesn't make sense to me.

    If you have $500 you can spend, and you haven't spent it by the day you fill out the FA forms, you have $500 in assets to report. It doesn't matter if it is in your savings account or cash in your pocket.
    Ok, I see what you are saying there, although I'm not down with the argument that the $500 fridge isn't one of your assets. And certainly, for many of the other items which we are supposed to depreciate, they would not be considered your personal property. The negative then would be that it is still counted as "income". Nonetheless, my response to your original statement:
    Depreciation is the big one as this is considered a "phantom" expense in that it doesn't represent money you actually spent.
    is still that some depreciation items do represent money you actually spent. Whether the school wishes to include them or not doesn't change that.
    Just because you are using the fridge in a rental property doesn't mean it is no longer personal property, it just means you can depreciate it.
    But you wouldn't count up all the appliances, furniture, carpets, etc. that you are depreciating, and then subtract the value of them from the value of the apartments they are being used in on the argument that those items are your personal property, would you? I'm not really getting that.
  • notrichenoughnotrichenough Registered User Posts: 8,449 Senior Member
    I'm not down with the argument that the $500 fridge isn't one of your assets.
    That's certainly a reasonable viewpoint, although at the very least the minute it leaves the showroom floor it's value probably drops by half.
    Nonetheless, my response to your original statement:
    Depreciation is the big one as this is considered a "phantom" expense in that it doesn't represent money you actually spent.
    is still that some depreciation items do represent money you actually spent.
    The question isn't "did I spend money on the item I am depreciating", of course you have to spend money. The issue is, what does depreciation really represent?

    Depreciation isn't an operating expense, like paying for insurance or an electric bill or a plumbing repair. You don't write a check every year to "East-West Depreciation Company". After year one, you are not shelling out more money for that asset, but you are still getting a deduction. Hence the term "phantom expense".

    And for the actual building, depreciation doesn't really represent the asset being "used up", the building will not have zero value after being fully depreciated. It most likely will be worth more than you paid for it.
    But you wouldn't count up all the appliances, furniture, carpets, etc. that you are depreciating, and then subtract the value of them from the value of the apartments they are being used in on the argument that those items are your personal property, would you? I'm not really getting that.
    I think you could make a case to do this, at least for those items that are not permanently installed. I still maintain that in most cases replacing an appliance or carpeting an apartment does not change the value of the property in a measurable way. So there is no need IMO.

    If you feel like you should increase the value you report by $500 after putting a new fridge in, go ahead. But personally I wouldn't.
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