Similar to another poster about an LLC, we have a family vacation home held in a Family Limited Partnership. From some research online, I found: “For financial aid reporting purposes, a propoerty held under a Family Limited Partnership counts as a business asset, not a personal real estate investment. Because the property is legally enclosed within a registered corporate entity (a Limited Partnership) [1] rather than being held directly on a personal property deed, it follows strict business asset protocols on both platforms.” As such, on the FAFSA it would be an Excluded Business (100% owned by family members and under 100 employees) versus a standard real estate investment; whereas on the CSS it would be listed as a business asset and we’d enter the details under the business schedule, which my research reports “keeps it entirely separate from your personal real estate or personal investments, signaling to institutional aid officers that this is an illiquid, minority-share family business interest rather than a cash-equivalent stock portfolio.” Does this sound right to others, versus having to figure out its market worth (we only have the tax appraisal value as its been in the family for 80+ years) and taking our family’s 14% share from that?
I wonder what % of people applying for financial aid have a vacation home, regardless of its legal classification. Seems contrary to the intent of providing aid to those that can’t afford the cost. Especially for any federal subsidy.
Some schools require these forms for merit scholarships. We are full pay but need to fill them out every year for our daughter to have her scholarship funds disbursed.
Not trying to evade paying what we should - it’s just that this property isn’t one that we chose to take on (it was purchased years ago by grandparents), not an asset that we can sell or borrow against, because my partner is a limited partner without those rights. So having to claim its worth as a family asset changes our own aid eligibility quite a lot.
I can say from years of experience that very, very few people applying for and receiving federal financial aid have vacation homes. Anyone can apply for aid.
As for the particular question of this property, I have no experience with this scenario. It sounds more like an investment to me, but you have to go by the actual instructions for the forms. If you have questions, it would be wise to contact your child’s first choice college & ask the questions.
Thanks for this suggestion. Asking one of our child’s top schools might help clarify. Our running of net price calculators indicates that our family should qualify for federal aid - that’s part of why I’m wondering about this property as it’s counted as an asset, but truly isn’t one that we have the ability to sell or borrow against. But also just wanting to be sure we put it in the right place on the forms as it being in a limited partnership may change its classification category (business vs real estate investment).
Business Asset: If the FLP actively rents the home to third parties (e.g., via Airbnb/Vrbo) on a commercial basis to generate income, it can cross the line into an operating business asset, allowing the partnership to deduct normal business expenses.
Personal/Investment Asset: If the vacation home is used strictly by the family and never rented out, it is treated as a personal or investment real estate asset. It does not become a “business asset” just because it sits inside an FLP.
You need to verify the soundness of these statements with a legal expert.
Yes, will continue to gather info. The house does get rented out some.
Remember, federal aid is basically Pell or loans. Everyone who files a FAFSA can borrow a loan, assuming they meet all qualifications for federal aid & do not have their Cost of Attendance met with other aid.
And yes, it is possible to receive Pell even with assets - it all depends on the total financial situation.
What is the source for this?
This source below suggests vacation property LLC is a personal investment asset (the value of the shares you own.) Also, if there is rental income and it’s reported as a personal asset, you will have to report your 14% share of the rental income.
I would speak with a financial aid specialist. I wouldn’t be surprised if you call school fin aid offices you might get different answers.
So to be clear, it shows you will qualify for a Pell grant? As kelsmom said, everyone who files FAFSA qualifies for the federal direct student loan.
I’m not sure this matters. We were asked if we wanted to be part of a family trust for a waterfront cottage that is worth quite a lot of money. We researched this a lot, and it would have added about $200,000 to our assets…and like you, we had no ability to sell the property at all.
I think you need to call the colleges and ask. Each one we called re: this trust property were very clear…we had to declare our share of the value of the trust on our financial aid forms. I’d be surprised if you weren’t required to do so as well.
Ok, I’ve done more research. Do you report this property on Schedule C or Schedule E on your taxes? If Schedule C, it’s generally a business for FAFSA purposes. If Schedule E, it’s an investment asset. Rental real estate and how it’s treated for tax purposes is governed by IRS pub 525. Whether or not the rental is in an LLC isn’t relevant. The level of services provided to renters is the primary determining factor between a business or an investment.
From Pub 525 linked above:
Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer.
Providing substantial services.
If you provide substantial services that are primarily for your tenant’s convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C. Use Form 1065, U.S. Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Substantial services don’t include the furnishing of heat and light, cleaning of public areas, trash collection, etc. For more information, see Pub. 334, Tax Guide for Small Business. Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. For a discussion of “substantial services,” see Real Estate Rents in chapter 5 of Pub. 334.
Obviously you don’t have to share all this info here, but this should get you on the right path to talking with your tax preparer. I would do this legwork before calling a financial aid staff member…if you do, only speak with a director level or above.
Financial aid officers, at least at CSS schools, will have all your tax documents, and they look at this Schedule C vs Schedule E issue for asset vs business reporting. To be clear, any financial aid officer can unilaterally change how you reported this asset.
I also agree with thumper1 that college fin aid staff won’t care that you can’t borrow against it or sell your share of this property. Of course once you have some financial aid offers in hand, you can always have a discussion with financial aid staff if this piece is significantly affecting the aid package.
I don’t think Schedule E vs Schedule C is the relevant differentiator.
Schedule C is only for sole proprietors. That is one type of business.
Part 2 of Schedule E is for S corps and partnerships. These are other types of businesses that file their own returns and then distribute K-1s to shareholders or partners.
Part 1 of Schedule E is for direct reporting of rental real estate, but that is not OP’s situation.
I’m not up to date with current FA rules but the OP’s first post makes sense to me.
However, I would add that many FA officers do not understand these nuances of tax reporting and business structure, so it wouldn’t surprise me if they view this as owning part of a house rather than owning part of a business or partnership. Still, I don’t think they are the same thing.
So (dumb Q), if a college determines that it’s an asset not a business, they calculate higher expected contribution than if it was considered a business?
Based on my naive reading of posts here, it sounds like if you own a second home (whole or in part, and in your name or through an LLC) if you provide cleaning services — like they do in AirBnB where there is usually a cleaning fee— then you can at least argue it’s a business not an asset? Although college FA offices may not agree with you.
Good point about Schedule C/sole proprietorship. So then the LLC could be filing Form 1065, using schedule E, and sending out K-1s.
If the LLC isn’t providing ‘substantial’ services to the renter (or if they really don’t have many renters), they are likely going to fail the business test. So then we are back to it being an investment asset.
I agree with all of this. That’s why it makes sense for OP to talk to at least one FA person about this. Because they can and do regularly override how people categorize business and assets if they think it’s incorrect. Note that if FA staff at one school corrects FAFSA, it is at the global level and will change at all the schools where submitted. CSS Profile changes are unique to each school.
Vacation homes go on FAFSA, most small businesses don’t. That may or may not impact federal financial aid and/or financial aid one receives from a given college.
And the OP says…it’s a vacation home….
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I posted a while back with a similar question. We are in almost the exact same situation. My husband is part of a family LLC that owns and manages a property that was inherited by the family long, long ago. He has no access to the equity in this property and cannot borrow against it. It does not produce any rental income either.
Did you end up asking a FA? I am curious what you were told. We are filling out the FAFSA/CSS this week and had decided to report it as an investment property, even though there is zero “investment” involved. If you have heard to do otherwise, I’d love to know.