Low income/High one-time capital gain, now unemployed


Currently an incoming senior at UCB. Both my parents are low-income workers with a combined AGI of around $30k from 2013-2019; however, in 2018, they sold our first home for ~$200k capital gains. They got really lucky from buying that home during the 2009 recession, but they sold at a terrible time since their inflated income affects my financial aid eligibility. Now that money just sits in the bank as their de facto saving account.

We weren’t concerned about getting no financial aid for my brother’s third year and my final year, but now that both my parents were laid off 5 months ago due to the pandemic, I’m not so sure. Tuition alone will be ~$30k for both of us. The prospect of them going back to work anytime soon is very slim since the county paused reopening due to increases in cases. Unemployment benefits have helped a lot with expenses but we’ll be forced to dig deeper into my parent’s savings after the federal stimulus payment ends this month.

With so much uncertainty going on, it is reasonable to request an adjustment to my financial aid if our 2018 tax return doesn’t reflect our current financial situation? I’m just conflicted because my parents can cover our tuition with their savings… but at the same time they’re indefinitely unemployed and tuition is not the only thing that’ll diminish their savings. Would love some insight!

Thank you

I’m not understanding why they had to pay capital gains tax. Capital gains is excluded on the sale of a primary residence up to 500K for a married couple. Unless you’re saying they sold the house for a 700K gain and have to pay taxes on 200K?

If you’re under the exclusion threshold (250K single and 500K married) you don’t even have to report it on your taxes at all.

Did they use that $200,000 to buy another home, or is it sitting in a bank account?

If the money is just sitting in a savings account as you say, then that is what’s affecting your EFC. That will tack about 30K on it right there. I would for sure appeal due to the loss of income. There is more financial aid out there this year due to covid aid from the feds.

eta: Never mind. I’m still half asleep. Any savings they have now from a 2018 sale they would have also had last year. I’ll go back to wondering why there were capital gains on the sale.

@cshell2 please explain what federal Covid aid is now available??

This student is a CA resident. Most state need based aid is based on the Calgrant eligibility.

With a $30,000 a year income, this student might have been eligible for the simplified needs test possibly. If less than $30,000 a year AGI, the student might have been eligible for auto $0 EFC. In both cases, for federally funded aid, the assets would not be included.

@candiewaa the 2020-2021 FAFSA became available for filing on October 1, 2019 and would have used assets as of the date if filing. If your parents had $200,000 in the bank that day (from a 2018 house sale) then that asset would have been on your 2020-2021 FAFSA.

So…where is that money? You say they sold “their first house”. Did they use that $200,000 as a down payment for another house?

You need to talk directly to the fin aid offices of your colleges and apprise them of your situation. I’m assuming neither you nor bro have gotten your packages yet which is late. Your FAFSAs should have indicated that your parents are dislocated workers and also special circumstances. How else is FA going to know? If you did not fill out the forms that way, you may need to correct them. But you are running very close to the start of school. When did you fill out FAFSA for your colleges?

@thumper1 - The OP states in the first paragraph that the money is just sitting in a savings account.

As for funding, the CARES act is providing emergency grant money for all students affected by Covid this spring. Some schools just automatically allocated it to all students based on credit hours or whatever criteria they used, but other schools (our local one) required an application for funds, some received a few hundred, some a few thousand.

The CARES Act funding must be allocated to cover costs related to the pandemic, such as computer purchase, travel expenses, loss of expected student income, etc. It is not meant to be used in packaging aid for the upcoming year.

Nowhere does OP say anything about capital gains taxes; the reference is to a capital gain from the sale of a home sitting in a bank account.

I’m also wondering if perhaps the simplified needs test or auto $0 EFC might apply, and also why this issue with 2020-2021 need-based aid is only coming up now.

The op state their “inflated income from capital gains” is affecting financial aid.

I suppose if they sold late in 2018 after filing the FAFSA that would explain why the big savings account is just causing a problem now.

@BelknapPoint are capital gains from home sales considered “income”?

And to @candiewaa are you talking about need based aid for this upcoming academic year 2020-2021? Please clarify!

Well, despite the quotes, that’s not exactly what OP wrote, and there is no mention of tax being owed on a capital gain. My hunch is that OP should have written inflated assets instead of inflated income.

Yes, unless an exclusion applies.


The only reason I mentioned taxes was I couldn’t understand why the gain would be included on the return at all if it wasn’t above the taxable threshold. But, I suspect you’re right and this is about the 200K savings account they now have.

Sorry let me clarify.

@thumper1 This is talking about the need-based aid for this upcoming academic year 2020-2021. My parents AGI is around $200k on their 2018 tax return. Since the house they sold wasn’t their primary residence, they did not qualify for the $500k capital gain exclusion. Now, that cash sits in their savings account.

My situation: My parents are low-income workers; besides their one-time income in 2018, their usual AGI is $30k a year. Currently, both of my parents are unemployed and survive off of unemployment benefits.

My dilemma: I wasn’t expecting any need-based financial aid for the academic year 2020-21 because they made $200k in 2018 from selling their 2nd home. My parents still had a steady job prior to 2020, with $160k in savings. But does the fact that both of them are unemployed since February change their ability to pay if they still have $160k in savings?

So, you’re getting double hit with the income and the savings…although the house asset before was probably about the same as the savings now. You CAN appeal the income part especially since they lost their jobs.

I’m confused…your parents owned 2 homes and recently sold one?

Ahh, more pertinent information always helps. You are a good candidate for “professional judgment” by the FA office at your school, based on the abnormally high 2018 income and your parents’ current unemployment situation. Contact your school’s FA office now, and explain your FAFSA numbers and what has happened since your 2020-2021 FAFSA was submitted.

I agree. The school might remove the one-time income from the home sale. They would still count the money in the bank, but removing that income keeps it from basically being counted twice. If you do qualify for simplified needs formula once that income is removed, the money in the bank would not be counted. I definitely encourage you to file an appeal for professional judgment (to exclude one-time unusual income).