Yup, I’ve seen similar stuff, and if that language showed up in the FAFSA or Profile instructions, it would be great. It would be very easy for FAFSA and Profile to use the IRS definition of quick sale value when explaining how to determine real estate value – but they don’t.
I wish that these “FA advisors” would provide a source for their advice to use quick sale value when completing FA forms. If you find something like that, please share with us.
^^ and how this fits as investment assets vs a small business, which may have some exclusions. There are several bits written about this in finaid.org.
In general, watch out for sites looking to sign you up as a client. Or random newspaper articles, unless authoritative.
Finaid.org also refers to FHFA, but warning not to drop below that figure.
Or sites with basic grammatical errors.
When valuing such property’s start by using…
And be careful with tips about the Fafsa when the issue is the CSS Profile.
From Forbes:
Rental properties are a popular tax and investment strategy among parents, but they do not qualify as a family controlled small business asset that can be excluded from the FAFSA. To be considered a business you must be providing a service such as laundry or cleaning. If your rental properties are in an LLC business structure, technically you can exclude the value as a small business on the FAFSA. However, if your child attends a college that requires the CSS Profile in addition to the FAFSA, there is no exclusion for small business assets on the Profile, so the rental will be counted on the CSS Profile anyway. http://www.forbes.com/sites/troyonink/2016/01/30/2016-guide-to-college-financial-aid-the-fafsa-and-css-profile/#512426f84a45
What is your AGI plus depreciation expense?
There are also sites that charge to give social security information, and the like. That does NOT mean they are reputable…or accurate. You know…you can probably find something to support your POV on the Internet…but that doesn’t mean it’s accurate information for FAFSA filers…or Profile.
@Jellicus “It makes sense that something needs to come off, it’s not like there’s no costs to selling property under the best of circumstances. What I can’t figure out is why does a family business that makes widgets get treated differently than one that actively manages real estate? It’s ridiculous to treat it like it’s a liquid asset like a stock, especially if it’s an incorporated business that provides part of our income.”
Does it? If you had a widget business in an LLC, wouldn’t all the equity in there be counted too?
Those first few words from the IRS you provided says “For offer purposes”. that is a strange way to start a sentence. Could this have anything to do with a IRS Collection problem? Many times people get into trouble with the IRS and they try to work something out. This sounds a lot like that. It talks about a discussion with the taxpayer or representative. Again. strange wording.
As was stated, things allowable for taxes is not the same for everything. You are going to do what you want. It seems to me that you need to use FMV then subtract debt.
All this being said, you are still nibbling around the edges. If you have 200K in equity, the CSS profile is going to count it as new worth. The college will expect you to borrow against that equity and remit it to them.
It has to do with valuing assets for an Offer in Compromise, which is a way of negotiating a balance owed to the IRS down from the full amount.
It has nothing to do with financial aid.
The points seem to boil down to 2:
1-Methodology of valuing the business?
I’ve found plenty of FA professional support for the “quick sale” approach, and no one has cited evidence of it’s rejection, only a general “seems fishy”. The IRS uses it as the basis for payment negotiation, which surely this process is also. The FHFA also seem supportable, it appears the calculator the schools use is similar if not the same.
2-Does the CSS make any distinction at all between passive assets and a family owned small business, never mind the nature of it’s assets?
Everyone here seems to say no. To make thing even more complex his ED school is a 568 Group member. I have no idea what effect that will have.
@allyphoe Yes. I figured it was something like that. Offer in Compromise. Good to know.
@Jellicus You definitely highlight the problem with determining FMV. I suspect there is a lot of playing around with numbers on the FAFSA for items like this. The income numbers, stock prices, investment figures are pretty easily determined but once you get into non-cash assets. It might as well be anyone’s guess. I doubt there is even anyone available to “audit” these numbers. The IRS has been mentioned and they use to do audits. Not much anymore I think. Last I heard congress wanted to get rid of them. Go to a flat tax. Do FAFSA auditors even exist? I am under the impression that colleges are put into the position of verifying items on the FAFSA like asking for a copy of your tax return. Who steps in if the colleges cannot figure it out? Interesting topic everyone. Sure makes you wonder how the system works.
No, they are not the same thing. Really, if you under report your real estate assets, it’s not likely that anyone will know. Except for you. You’re the one who has to live with it.
Sometimes I think people forget FA folks do this year in and year out, are wise to tricks. Nor just how much authority they have, as long as they adhere to a few guidelines.
I don’t see why it’s confusing to say, rather than lop some value off the top (because a different organization allows that under different circumstances,) go with an as-is value.
Or rather, I suspect this is about driving the value as low as possible, regardless. Your game, your outcome.
If finances are a significant consideration…perhaps he should consider NOT applying ED.
Profile schools have a variety of formulas used to compute need based aid. The awards can vary by many thousands of dollars. Some schools package loans, some don’t.
Your kiddo will get that ED acceptance and financial aid package…and will have a very short window of time to decide whether to accept it. The trouble is…this ED financial aid will be the only package you will have. It might be the best one he could get…and it might be the worst. You will not know when you make that decision.
@lookingforward
You sound like you think there’s something wrong with me trying to figure out how to ethically comply in the most advantageous way. I know the FA people are professionals, but as you say they have guidelines. What’s wrong with determining as best I can what those are? I didn’t creatively come up with the quick-sale formula, FA professionals have recommended it. Presumably that’s based on what Federal auditors would use in an audit of Pell Grants. My wife heard somewhere that 1/3 of those are audited.
@thumper1
Yes, we’re struggling with the implications of ED. I resent how it’s structured. As more schools admit more of their class ED, it makes the student body of the elite schools even more financially elite than they ever were and lowers the admission rate of the non ED students. Thus the pressure to present an the best possible CSS Pr@t@t@thumper1
@BelknapPoint :
I will not commit fraud, but I also don’t feel that these schools that have raised their tuitions far faster than even healthcare are entitled to well over half our aftertax income or imperiling our retirement without my trying my best to reduce that. By giving no guidance on how they would like property valued they are gaming us.
The people you quoted are not financial aid experts. FA experts are people like kelsmom who work with financial aid documents day in and day out.
Really, there is almost zero room for interpretation on these forms
Both FAFSA and Profile do provide guidance on how they would like property valued, and it’s pretty simple.
For FAFSA see Question 91 on page 55 of this document:
https://studentaid.ed.gov/sa/sites/default/files/2017-18-completing-fafsa.pdf
Here are the Profile instructions for parent-owned real estate other than the primary home:
*PA-180A - If your parents own other real estate (including residential or commercial rental property, land, second or summer homes, a time share), enter how much these assets are worth today. Use the price they could reasonably expect to receive for these assets if they were sold today. Do not use assessed, insured, or tax value.
If your parents are not the sole owners, enter only your parent’s share of the total value.
If your parents do not own any real estate other than their home, enter “0” (zero).
PA-185A - Enter how much your parents owe on other real estate/properties, including the current payoff amount of the mortgage and related debts. Do not include interest due, escrow payments, insurance premiums, association fees, or property taxes. Check with the mortgage company if you are not sure of the amount.
Only enter what your parents owe on the real estate/properties; do not include personal or consumer loans or any other debts.
If your parents are not the sole owners of the real estate/properties, give only your parents’ portion of the debts.
If your parents do not own any real estate other than their home, enter “0” (zero).
PA-190A - Do not answer this question if you entered “0” (zero) in PA-180.
If your parents own more than one property, enter in Section ES the year each was purchased and its purchase price.
If your parents own other real estate but didn’t purchase it, select the year they took possession of it.*
I think some of the confusion with “quick sale value” may have come about because of the instructions that say to value the asset based on how much “it is worth today,” or how much you could expect to receive if the asset “were sold today.” This does not mean how much you could expect to receive if you had to sell the property immediately. In my opinion, it means what is the fair market value as of today.
I assume that the “FA professionals [who] have recommended” using the quick sale approach are not actual financial aid officers at actual schools, and are instead fee-for-service folks who want parents to pay them for their advice and strategies. If I am mistaken, and a financial aid officer who is employed in that capacity at a school has said it’s OK to use the quick sale approach to value real estate, please let us know who that person is.
@belknappoint, surely you recognize that “how much these assets are worth today” is not so simple, excepting an actual appraisal, and in my experience those are wildly inaccurate too. This is why the FHFA calc exists, to provide an unbiased, easy to use number for the millions being asked to value their properties.
So, it seems the crowd here does not think a ‘Certified College Planning Specialist’ is enough of an expert in these things. If not them, who? One of the CCPS’s also held a CPA. Do you think their clients are routinely getting their property valuations challenged and the advisers continue to give the same bad advice?
@thumper made the excellent point that
And @mom2collegekids wisely suggested that your child adjust his/her list of schools. No one is saying that the expensive schools on your child’s list are gaming you, or that your child has to apply to them.
That’s already been established several times. Actual Financial Aid officials who work in actual financial aid offices. The ones whose job it is to go through forms and ask for verification if needed and correct mistakes that they see.
Really, anyone can claim to be a financial aid expert. I’ve seen so many flat-out lies on “FAFSA help” sites that it would make your head spin.