How does Rental Property affect Financial Aid

<p>My son will be starting his first year of college and we receive Financial Aid and I’m thinking about buying a rental property later this year.
I was wondering how this would affect Financial Aid. </p>

<p>I figure that the equity (value - Loans) in the property would be the same as having that amount in the bank. Correct?</p>

<p>I.e. Property value of $100,000 and loans of $80,000 would show $20,000 net asset would that be the same as $20,000 in the bank?</p>

<p>What about the income? This is where I have my greatest concern. Assume there is a gross income of $20,000 with expenses (not depreciation) of $15,000. I would think that the $5,000 is what is added to your income. Anyone have any experience with this.
Thanks</p>

<p>I think you have to add the entire $20k as income. FAFSA doesn't consider deductions.</p>

<p>The 20K would just show as an asset--similar to savings-- right? Not as income. If I remember correctly from our FAFSA, the net rent (rent-expenses) is all that would show as income. In our case last year, we had a loss on our rental property, so that actually reduced our AGI quite a bit</p>

<p>The AGI includes the net rental income from schedule E - so rent less expenses.</p>

<p>Yes the reportable asset would be the net value - value less mortgage.</p>

<p>Thanks for the input. I assumed that it was the net rental income that was included.</p>

<p>

That can't be right, since you add the net gain or loss to the 1040 from the Schedule E. However, for the Schedule E, you include the depreciation as well, so OP should figure that in. In the first few years, a heavily mortgaged property often shows a loss, which would have a positive effect on the AGI. The equity has a very negative effect on the FAFSA.</p>

<p>^^</p>

<p>Right. I forgot that you input the rental income from Schedule E minus deductions.</p>