I'll be selling my house during the next year, and hopefully starting med school in Fall 2004. (In case you're wondering, it's time to sell the house anyway.) I need help figuring out when to sell it so that the $ doesn't count against me for financial aid.
Here's the scoop: they don't count the house you're living in as an asset. I want to sell the house at a good time of year (i.e. spring/summer), and ideally turn around and buy in the community in which I will be going to school. However, there will probably be a few months between sale and buying, and I do not want to get stuck with a big chunk of cash in the bank that will count as an asset.
Any financially astute OPMs out there?
Meowmix:
I think your best bet for that question might be either people who have already gone through the process, your local financial aid office, or Carmen Stanton, our Now$Loans rep.
Kathy
when you enter the financial aid process, presumably in the spring of 2004, you’ll have to fill out the FAFSA, the Free Application for Federal Student Aid. The 2004 FAFSA information will all be from your 2003 income tax return. You will have a “capital gain” in selling your house, which is normally rolled over or deferred by buying another house. I do not know what happens to that capital gain if you sell a house in 2003 but don’t buy another one until 2004.
You will have additional financial aid forms to fill out that are specific to whatever school you’re attending. At my school, the form asks for balances for all your accounts - so if you had to fill that one out, you’d have to indicate the $$ from the house if you hadn’t yet gotten another house.
However, the EFC (Estimated Family Contribution) is calculated solely from the FAFSA, NOT from the supplemental financial information you provide to a specific school. The school takes that EFC and the additional information and uses all of it to decide whether you’re eligible for scholarships and school-based aid; your eligibility for subsidized vs. non-subsidized loans is based on the FAFSA determination of EFC alone. I think.
You may want to talk to the financial aid people at the schools you consider to be at the top of your list, and see if they can give you some additional pointers.
caveat I am pretty sure I’ve described this accurately but I do not claim to be a financial aid person, nor do I play one on TV.
The wife and I struggled a bit with this one when we were deciding how to time our home sale with moving and med school. We bought another house in the new location, using most of the equity from old house, so the timing issue was not as critical for us.
The FAFSA's I have completed do NOT ask for asset info on the primary residence, BUT they do ask for account balances (NOT including retirement accounts). So, if one has a lot of equity in the current home, sells it, and banks the equity, this will show up on the FAFSA. By buying another house at the new location, one can exclude the reinvested equity from FAFSA consideration. Mswagner and I thought that reinvesting most of the equity from the old house was a good strategy. This would make us available for more FAFSA determined aid (based on the EFC as explained by Mary above), while keeping a reasonably liquid source of emergency funds - that is, we could always refinance at a higher loan/value ratio to get cash out if needed.
It turns out that some schools ask for primary residence asset info, and this can be haphazardly done, for instance, requiring the value of the home be reported, but not the student's equity in it! Thus, the strategy we used may not be optimal for all. You should check the school(s) you are considering to determine the timing and strategy that will help your aid eligibility most.
Good Luck!
Mrwagner
Depending upon the annual cost of attendance of your school, the amount of money in those accounts may not have as profound an effect as you fear. My father-in-law died towards the end of my MS-1 year…in time to “count” for my FAFSA for MS-2 thru 4. Her inheritance, while not enough to set the world on fire nor have the investment capitalists hanging out by our door, was certainly substantial enough to have purchased a pretty nice home. Yes, my EFC went up accordingly, but it did not detract from my total eligibility. In fact, due to an escalation in tuition and larger predicted expenses for subsequent years, my total available to loan actually increased. What was effected was the mix of subsidized vs unsubsidized, the former comprising a smaller piece of my “loan pie”.
Furthermore, once you are “in”, if you FA package is inadequate or needs adjustment, you can speak to your school’s FA officer. In certain circumstances, they have some degree of levity to adjust your situation & eligibility.
So, unless you are lucky enough to get into one of those ultra-cheap state schools (not all state schools are cheap!), this may not pose as large an issue as you fear.
Bump…
Now that some time has passed, has any one gotten any more information on this subject? Now that I’m in this boat, I have just started looking into it. Here is what I found so far.
A married couple could exclude up to $500,000 from the gain on the sale of their house, a single person $250,000 - see CFR Part I of the IRS, RIN 1545-AX28.
Not sure how this relates to turning over that gain and putting it into a new house. This used to be a requirement, is it still? If a certain amount is excluded, what difference would it make? Also, the exclusion states that it is not a once in a lifetime deal, as the old one was, but you can take advantage of it every three years if you need to.
Quote:
Bump…
Now that some time has passed, has any one gotten any more information on this subject? Now that I’m in this boat, I have just started looking into it. Here is what I found so far.
A married couple could exclude up to $500,000 from the gain on the sale of their house, a single person $250,000 - see CFR Part I of the IRS, RIN 1545-AX28.
Not sure how this relates to turning over that gain and putting it into a new house. This used to be a requirement, is it still? If a certain amount is excluded, what difference would it make? Also, the exclusion states that it is not a once in a lifetime deal, as the old one was, but you can take advantage of it every three years if you need to.
The new tax laws are drastically different from what you describe, at least they were last time I checked. As long as you have lived in a house as your primary residence for 3 of the last 5 years, you may sell it & retain 100% of the profits w/o owing taxes. This is no longer restricted to 1/lifetime as it once was. I don’t know how frequent you may do it. Also, you are not required to put the profits, or any %-age, back into another house to avoid taxes.
Now, as is always the case with the IRS code, this info could RAPIDLY change. But, this is how it was when I last spoke with my accountant about Feb 2003.