Buying house for Child to help with In State Tuition Costs

Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes

My REI lawyer on BP said this might work, I wanted to get some feedback.

My daughter will be attending a University in a different state next fall
We buy a small house for her this year, and put the title in her name in that State
It rents out year one and she generates in state income and claims this on her taxes (lowest tax bracket)
Freshman year she lives in dorms as mandated, she switches her drivers license and car insurance to that state year one.
Sophomore through Senior year, she moves into one bedroom in the house, rents out the others to friends and still collects rental income and pays local state taxes, expenses, etc and has a place to live.
She seeks in state tuition in year two after owning a house in state, collecting income and filing taxes with the state.
Her tuition, room and board is being paid by her 529 account in her name, so technically she is "emancipated" from mom and dad.

Has any one tried this to reduce the costs of being an out of state resident during college. She basically becomes an in state resident by living in state, owning a income property and filling taxes. The mortgage is in my name (private lender basically)

Pete

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Levi T.Pro Member

Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes

Originally posted by @Rick Pozos:

When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.

If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.

There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.

That's not cheating, that's following the rules and winning. He could very well move the entire family to the state and get the same deal, would that be cheating? No. As Trump said, it makes him smart. Nicely done Peter!

I figured I would pickup an apartment complex or two when my kids get to that point. Can't lose, save some cash and expand my rental footprint.

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
9y
Well, yes, however, the last sentence, for the mortgage to be in your name only you'll need to be on title. Put the mortgage in her name and you sign as a guarantor, that fixes that. Great plan!
Just a tip, don't get tied up in being close to the University, kids should have decent cars, staying out from the rental area will keep your price lower for a quality home, buy one that will be marketable in good condition. Good luck :)
4 Reply
Rick Pozos
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
9y
When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
3 Reply
Jeff Vranek
Professional · Highlands Ranch, CO · Member since 2016 · 18 posts · 3 votes
9y
Good plan but beware college friends don't like to pay rent
0 Reply
Levi T.Pro Member
Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
9y
Originally posted by @Rick Pozos:

When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
That's not cheating, that's following the rules and winning. He could very well move the entire family to the state and get the same deal, would that be cheating? No. As Trump said, it makes him smart. Nicely done Peter!

I figured I would pickup an apartment complex or two when my kids get to that point. Can't lose, save some cash and expand my rental footprint.
15 Reply
Greg H.Pro Member
Moderator
Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
9y
You would need to establish residency(usually one year) before she starts at the university. Her transcripts will show she was not living in the state
2 Reply
Peter Schuyler
OP
Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes
9y
Originally posted by @Rick Pozos:

When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
Hey Rick, you do have some valid points. I was a Colorado resident from 10 years, then moved to Texas for the last 9 years. CSU has one of the best Vet programs in the nation is why she wants to go, we have saved up some money for her, but the 160K total for out of state is out of our reach. Buying her a property and having her off our books is the plan, she would have to have a part time job to pay for incidentals and I would not claim her on my taxes, so she is not my dependent anymore. If she plans to move and live in Colorado, I do not want the state fighting me that she is not a resident, thus the reason for the activity to buy a rental property. Maybe this plan is way too complicated, and she might end up paying the difference in out of state tuition regardless. Texas does have good schools, my other daughter goes to Texas State University so I agree with you. I did not think I was cheating, if so I would not ask for comments in a public forum.
Thanks
Pete
6 Reply
Peter Schuyler
OP
Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes
9y
Originally posted by @Levi T.:

Originally posted by @Rick Pozos:
When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
That's not cheating, that's following the rules and winning. He could very well move the entire family to the state and get the same deal, would that be cheating? No. As Trump said, it makes him smart. Nicely done Peter!

I figured I would pickup an apartment complex or two when my kids get to that point. Can't lose, save some cash and expand my rental footprint.
We have considered picking up and moving to help her out, but we get bit by the Colorado Income Tax on our W2 income and the cost to move plus 4 years of Income tax would probably be a wash for saving, she will just be stuck with a large student loan like others have done, is just a shame college is so expensive, 40-50K a year for out of state. 15-25K in state.
0 Reply
Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
This wont work.
College's don't care where you generate passive income via a rental property. They care where you can PROVE you're living.
She would have to show a w2 for the state, utility bills, certified mail to her at that address.
You HAVE to live in the state for a year- without attending college there, or out of state, to qualify for in state tuition. Period.
If they can prove any intent that your purpose was to try to obtain in state tuition and not to legitimately relocate there for reasons outside of school, they'll deny the in state tuition.
I moved in with my dad for college in a state where he'd lived for 7 years. But I took a few online classes through my old school in my previous state- that denied me the in state tuition. If you have any ties to another state till- they're going to deny it.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Why doesn't she just...move into that rental house- live there a year and work full time to save money for college. They pay in state tuition the next year when she is actually a resident.
One year isn't any thing in the big picture.
You're not trying to trick you're way into something you don't qualify for.
And it'll teach her to work for things she wants.
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Peter Schuyler
OP
Fort Myers Beach, FL · Member since 2016 · 225 posts · 124 votes
9y
Originally posted by @Natalie Kolodij:

This wont work.
College's don't care where you generate passive income via a rental property. They care where you can PROVE you're living.
She would have to show a w2 for the state, utility bills, certified mail to her at that address.
You HAVE to live in the state for a year- without attending college there, or out of state, to qualify for in state tuition. Period.
If they can prove any intent that your purpose was to try to obtain in state tuition and not to legitimately relocate there for reasons outside of school, they'll deny the in state tuition.
I moved in with my dad for college in a state where he'd lived for 7 years. But I took a few online classes through my old school in my previous state- that denied me the in state tuition. If you have any ties to another state till- they're going to deny it.
I'm starting to see the flaw in the plan now, I guess a property could at least offset some of the costs of living in state. She can not work full-time, be off my taxes and go to school full time, and I know we are not the first family to deal with out of state tuition costs which help fund the in state residents. What sucks is we used to live there for 10 years and paid income tax as a resident, but that is a wash now.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Right What I'm suggesting is that she wait a year before going to school.
If she waits 1 year and starts at 19 vs 18 it's not a big deal (unless she has a scholarship or something) but think of the savings it will provide by allowing her to pay instate tuition for 4 years vs. out of state.
Ya...that was my argument with appealing for residency rates in my dad's state was that he'd been living there for YEARS and paying taxes and they said it didn't matter.
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Mark C.
Investor · Coimbra, Portugal · Member since 2015 · 54 posts · 37 votes
9y
Originally posted by @Rick Pozos:

When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
Why is this "cheating" the system?
She pays out-of-state costs initially, then establishes residency in that state. She is then entitled to in-state tuition costs. This seems to be following all the rules, not cheating them. The property taxes from this home, and the income taxes on the rent, will go towards paying any in-state discount.
5 Reply
Mark C.
Investor · Coimbra, Portugal · Member since 2015 · 54 posts · 37 votes
9y
Originally posted by @Natalie Kolodij:

This wont work.
College's don't care where you generate passive income via a rental property. They care where you can PROVE you're living.
She would have to show a w2 for the state, utility bills, certified mail to her at that address.
You HAVE to live in the state for a year- without attending college there, or out of state, to qualify for in state tuition. Period.
If they can prove any intent that your purpose was to try to obtain in state tuition and not to legitimately relocate there for reasons outside of school, they'll deny the in state tuition.
I moved in with my dad for college in a state where he'd lived for 7 years. But I took a few online classes through my old school in my previous state- that denied me the in state tuition. If you have any ties to another state till- they're going to deny it.
I am not sure she needs a W2, but she could get a part time job. The rest will come with the purchase of the house ... utility bills, certified mail at that address, title of the property, paying taxes on it etc etc.

"You HAVE to live in the state for a year- without attending college there, or out of state, to qualify for in state tuition. Period."
OK, this might be a problem. However you might be able to get around it by buying the property one year before attending college. This makes it very tricky, if my 18yo daughter is anything to go by, they don;t know where they want to go. It might also still work if you plan to do the first year of college in-state, get all the 101s out of the way, then move to the desired college.

Cutting "ties" to the old state should happen as part of the move.
0 Reply
Leigh C
Brooksville, FL · Member since 2012 · 429 posts · 220 votes
9y
@Peter Schuyler
Buy the little house after she graduates in her name, have her get some type of internship or work experience in the field she is thinking about getting a major in. Have her keep switching jobs till she actually likes what she does, then she can go to school for it.

So many switch majors and waste their degrees....
2 Reply
Mark C.
Investor · Coimbra, Portugal · Member since 2015 · 54 posts · 37 votes
9y
Even if you can't get in-state tuition, this is an excellent way to diversify into another market. It also gets your kids interested in REI, so of course the first step will be there own BP account! The income from the rent will be a reasonable way to pay for tuition even on out-of-state rates. Any appreciation could be used to pay off student loans, or 1031 into a new home to start their new life.

Putting all this in their name helps establish credit, and good practices (with guidance). It also offload s that income from you. You could therefore pay much less tax on it, before it goes towards tuition.

It is a very efficient model if you can get all the pieces to work. I have considered it for my daughter @Emma Coles, who now has her own BP account, and we are starting to talk about how this real estate thing works.
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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Originally posted by @Mark C.:

Originally posted by @Rick Pozos:
When you try to cheat your way out of something, you end up paying for it in the end. Ask me how I know. Plus, what kind of message are you sending to your child?? You are showing her that the rules do not apply to her if you have a good scheme.
If you are an IT professional you should be making plenty of money. Why are you trying to cheat the system?? YOu should have been saving money for 5 or 10 or 15 years to send your children to college just like everybody else. But instead, you want to try to get out of paying out of state tuition. If you live out of state, pay out of state tuition. Play by the rules.
There are plenty of great colleges and universities here in Texas including the two main systems, University of Texas with lots of branches, and the A and M system also with many branches across the state.
Why is this "cheating" the system?
She pays out-of-state costs initially, then establishes residency in that state. She is then entitled to in-state tuition costs. This seems to be following all the rules, not cheating them. The property taxes from this home, and the income taxes on the rent, will go towards paying any in-state discount.
Because if you're attending school there you never get residency tuition rate.
If you live there for a year and your intent is living there to go to school- you're never a resident. She wouldn't pay out of state for one year then qualify. She'd pay it all 4.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
They really make you PROVE that you're intending to make that state your permanent residence and that you're not just moving there for school.
Having a house there won't do it unless she can show she occupied it for the year. They're SUPER picky about this.
The point of in state tuition is to give a break to residents who've paid taxes in the state for years that funded that college. It's cheating it if you're trying to make it seem like you have/will but your only intent is to attend school there.
I realize they lived in the state earlier (same thing happened to me) unfortunately the state doesn't care if you USED to pay taxes. They don't consider it like paying into a fund like SS.
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Curtis McDonald
Saint Louis, MO · Member since 2016 · 6 posts · 5 votes
9y
It is pretty easy to get instate. I grew up on the IL side of St Louis and went to school in MO. I switched to instate after my freshman year and all I had to do was the following:
1. Prove you live there for a year with a job - school counts as employment, so take a summer class or find an internship, bring some mail, and show you made some form of payment for housing. I provided my fraternity's housing bill and a letter from the property owner I rented from during the summer.
2. Get a drivers license and register to vote
3. Register any property in the child's name to the new state (example a car)
4. Fill out a form with university
You might have a hard time with this prior to the first year, but if you can't figure it out, it's pretty easy to qualify the second year.
I have friends who's parents purchased a 3-4 bedroom home for their sons to live in (they were 4 years apart, so they would attend school for 8 consecutive years) and rented rooms to their friends which covered the mortgage and expenses.
When I lived in Atlanta, I had a friend who was able to attend Georgia Tech as a Georgia resident even though his parents lived in Louisiana. This allowed him to receive the Hope Scholarship (Free tuition to GA residents at instate schools if you maintain a 3.0). I believe this had to do with his parents purchasing a home in Atlanta, but I don't know the details.
1 Reply
Krista Walker
Cave Creek, AZ · Member since 2015 · 51 posts · 13 votes
9y
If she can prove in-state this is not cheating. I think every state is different, so beware. In Arizona, you had to show a DL, elec bill for over a year and a W-2. But a summer job counted. Good luck!
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
Originally posted by @Curtis McDonald:

It is pretty easy to get instate. I grew up on the IL side of St Louis and went to school in MO. I switched to instate after my freshman year and all I had to do was the following:
1. Prove you live there for a year with a job - school counts as employment, so take a summer class or find an internship, bring some mail, and show you made some form of payment for housing. I provided my fraternity's housing bill and a letter from the property owner I rented from during the summer.
Are you sure they count school as employment? I went to school in 3 different states and in none of them did going to school there qualify you for residency.
The point of residency per any of the schools I went to was to prove you WEREN'T only there for school.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
@Peter Schuyler Which school is she attending?
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Curtis McDonald
Saint Louis, MO · Member since 2016 · 6 posts · 5 votes
9y
Yes, if you are a full time student, that is your employment. To prove intent to live there long term is why you must register to vote, get your driver's license, and register any property to the new state.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
@Curtis McDonald
That would literally allow everyone to get in state tuition...as long as you just switched voter registration. I reallyyyyy don't think this is correct.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y
http://sfs.colostate.edu/in-state-tuition-requirem...
Home ownership is one of the proofs....
But if it was obviously while she was still living in another state to finish high school they won't consider it.
If you look at the bottom regarding legal ties to another state...she'll obviously show prolonged living elsewhere.
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Curtis McDonald
Saint Louis, MO · Member since 2016 · 6 posts · 5 votes
9y
Rent receipts and signed lease agreements also qualify. I expect you only have to fulfill one of section 1, and maybe a few of section 2, but probably not all. I would call the school directly. Not super different from what I had to do for my school. If you start paying taxes to the state they'll probably let you claim residency. I would call the school directly and speak with someone.
The biggest thing is NOT to have these:
- Failure to file a Colorado state income tax return
- Failure to have Colorado state income taxes withheld from your wages
- Filing a Colorado state income tax return as a non-resident
- Failure to obtain a Colorado driver’s license or Colorado ID
- Maintenance of a home in another state
- Prolonged absence from Colorado
- Vehicle you operate is registered in another state
- Residing in another state between academic terms or when not enrolled as a student
- Any other factor unique to the individual which tends to imply your permanent home and legal residence is in another state
If you understand what you're looking for, I don't think this is that hard to achieve, even if it isn't until your second year.
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