Tax structure alternatives to form "E" for tuition aid purposes?

Question

There was a short thread on this, but it was locked. We have 13 units (including our own) in 3 properties, and file schedule E. I actively manage and maintain these properties. From my reading, I need to form a more formal "business" if the FAFSA college financial aid form is to consider this a business as I do, rather than just assets. My eldest is entering high school this year, hopefully it's not too late to restructure credibly.

Can anyone speak to the pros, cons and difficulties of the various forms of incorporation in this context? I've heard transferring the properties to the corp can be a PITA.

Yes, I know I need to find a good tax lawyer, but I'd like to go in know all I can.

Can anyone speak to the pros, cons and difficulties of the various forms of incorporation in this context?  I've heard transferring the properties to the corp can be a PITA.

Yes, I know I need to find a good tax lawyer, but I'd like to go in know all I can.

Johann Jells · Answer

It's not about the income but about the asset. My properties are virtually our entire retirement, I can't sell off what the higher education system thinks they should get of my worth to educate my kids.  Even if they go to Rutgers, a state school, it's still going to cost nearly $1/4m for the 2 if they live in the dorms.

Ceril S. · Answer

Filing a FAFSA this year (not even with active income producing properties yet!) and we are above the level of any financial aid. Told the kids that they are working on the properties in 2015 to help pay for college and they have to get outside jobs as well.  (Will start another thread on this)

Still - bringing back this old thread to see if others have any words of advice for the future. I have 4 teenagers so I'll be in this loop for another 10 years!

Curtis Bidwell · Answer

My wife worked in the  financial aid office of a university a few years back and subsequently ran a grant writing business for students.  At that time your personal residence WAS counted toward available assets.  @Ceril S.

Also, without getting a current appraisal, you may want to evaluate your equity position based on what you could liquidate your properties for in 30 days.  Then put your higher equity properties in a business structure that is non-passive.

Johann Jells · Answer

Well I've been kicking the can down the road for almost a year since I found out this year didn't financially count for my class of 2017 eldest.  Basically I found out you need to "de-passive" your assets.  Make it into as "real" a business as you can stand. LLC, C corp, whatever.  I don't think anything form E like an LLC will cut it with most fafsa recipients. It says passive even if, like me, you qualify as a RE pro.

I think we're going to put our 3 properties in a C. There's just too much at stake.  We'll lose deducting the 1/4 of the multi we live in, but if it pays off, it'll be worth it. If it really sucks, in 10 years when my youngest is done, we'll revert.

Ceril S. · Answer

@Sarah Seaton as far as I can see the FAFSA won't count the equity in your primary home and they won't count the equity if you have a small family business with less than 100 employees.  As far as income, are you making the most of deductions?  I'm Curious how that works out for you.  I'm not a full timer (yet!) so my W-2 job is sinking me for financial aid. The FAFSA is based on your taxes. However, if the kids go to a college that takes their own financial questionnaire then the equity in your house and business will count.  Many private colleges do this and they have their own money that they give in aid.

Sarah Seaton · Answer

So if I set a corp with properties in it that might help?? That might be easy quick claim deed and then corp filing each year $300 cost for filing and corp set up fee. I met with attorney last week and she talked about a serial LLC. Do you know anything about that? wouldn't the FAFSA look at biz assets the same way? as a personal assets.. I know so little about this!! Will see attorney thursday at mastermind meeting will try to find out more.

What I am finding is that if you take home more than 60K a year you are not getting much help unless you have 3-4 kids in school. My kids are smart, honors and such but not top of the class and we are not in a great school.

Stay in touch love to know if you learn anything. I have not found other parents with kids in school right now that know about this situation-- that have rental property as their sole income.

Ceril S. · Answer

@Sarah Seaton I have only seen a note that if the property is held as a business then it won't be listed on the FAFSA? But I think we are in a similar boat - not qualifying for any financial aid! It becomes a very expensive proposition!  We have 2 in high school and 2 in junior high....

Sarah Seaton · Answer

Hello! I have been digging and digging! We have two high schoolers and college is fast approaching. I have talked with several financial aid officers and have gotten no where. What I have been told is that you have assets so sell one of your properties to pay for college... We have assets so they go on the FAFSA. If we sell properties our income goes down-- and is not what I can do. I have been told put properties in my mother's name.. NOT.. We are in the donut hole for financial aid! We make a decent living with 12 properties but having some aid for college would be a great help!! Any ideas.. putting the properties in a trust? I was told  if the properties were in a IRA account.. then they wouldn't be counted.. well This is our sole source of income so that's not happening.

Isn't this the same situation as farmers with land and not a huge amount of cash flow? and what do they do?

Ceril S. · Answer

@Johann Jells  I know that this is an old post but I was searching for investment properties effect on the FAFSA for college. I have a senior in high school and this is close approaching. I'm not sure how investment properties effect eligibility for financial aid.

Thanks if anyone has any tips!

Sarah Seaton · Answer

Have you found any info about the FAFSA and assets? I would love to know!!