I have been in several conversations with parents who are planning for future years of college for their children. I always mention that one of the ways to cut some expenses could be to invest in a house for campus life. One of the advantages would be no dorm costs. Another would be the possibility of roommates to help with expenses. In any case, the house could be sold at the end of the college term with potential equity and interim tax deductions on rental property. Well, I recently had this article in my monthly newsletter.

Investing in Student Housing Looking for ways to trim college costs for your child or grandchild? Consider investing in housing near the campus for your child to share with some other students. By becoming a landlord, you can earn rental income, collect tax breaks, provide housing for your student, and hopefully turn a profit that can offset tuition bills. Here are 10 guidelines:
  1. Before investing, visit the area to evaluate real estate around the campus. Location is critical and one block might be more desirable than another. Look for a neighborhood where the tenants and their parents will feel safe.
  2. Make sure the house or condo is structurally sound and large enough to accommodate three or four tenants.
  3. Once you decide on a property, find out how much you can reasonably expect to receive in rent and pay in expenses. Make a bid that allows you to cover your costs with cash left over. You probably want a relatively small down payment and a large mortgage.
  4. After you close the deal, you have to get the place ready for occupancy. You can hire your student to do basic work like landscaping or painting. You get a deduction for the wages while the child likely gets some tax-free pocket money. (For 2011, a single taxpayer can have up to $5,800 in earned income without owing federal income tax, up from $5,700 for 2010.)
  5. Charge rents that are comparable to other near-campus apartments. Screen renters carefully. Insist on formal leases, co-signed by the students and their parents. Check references and be sure to collect at least one month’s rent as a security deposit.
  6. With your student as one of the tenants, you save the cost of room and board. In addition, you can pay your child a modest management fee – perhaps a couple hundred dollars a month – for collecting rents and maintaining the property. Again, you can deduct the payments while your student picks up some spending money.
  7. You can write off mortgage interest and property taxes, as well as depreciation, repairs, utilities, condo fees and insurance.
  8. Rent that you collect from the tenants is taxable to you, but your deductions can shelter some or all of the rental income. (You might be able to take a deductible loss if your adjusted gross income is below $150,000.)
  9. Conduct the rental with your child as if it was an “arms-length” transaction between unrelated people. The IRS can be suspicious of business deals between family members. Check with your tax adviser before structuring the arrangement.
  10. You might want to sell the property once your student graduates. Hopefully, it will appreciate handsomely by then. And fortunately, the rate currently charged on long-term capital gains from business real estate is no more than 15 percent. And if you sell at a loss, you can deduct that amount because it comes from business property – unlike losses from personal residences that cannot be written off.
   
  Investing in Student Housing
Looking for ways to trim college costs for your child or grandchild? Consider investing in housing near the campus for your child to share with some other students. By becoming a landlord, you can earn rental income, collect tax breaks, provide housing for your student, and hopefully turn a profit that can offset tuition bills. Here are 10 guidelines:
1.  Before investing, visit the area to evaluate real estate around the campus. Location is critical and one block might be more desirable than another. Look for a neighborhood where the tenants and their parents will feel safe. 2. Make sure the house or condo is structurally sound and large enough to accommodate three or four tenants. 3.Once you decide on a property, find out how much you can reasonably expect to receive in rent and pay in expenses. Make a bid that allows you to cover your costs with cash left over. You probably want a relatively small down payment and a large mortgage.
  4. After you close the deal, you have to get the place ready for occupancy. You can hire your student to do basic work like landscaping or painting. You get a deduction for the wages while the child likely gets some tax-free pocket money. (For 2011, a single taxpayer can have up to $5,800 in earned income without owing federal income tax, up from $5,700 for 2010.) 5. Charge rents that are comparable to other near-campus apartments. Screen renters carefully. Insist on formal leases, co-signed by the students and their parents. Check references and be sure to collect at least one month’s rent as a security deposit. 6. With your student as one of the tenants, you save the cost of room and board. In addition, you can pay your child a modest management fee – perhaps a couple hundred dollars a month – for collecting rents and maintaining the property. Again, you can deduct the payments while your student picks up some spending money. 7. You can write off mortgage interest and property taxes, as well as depreciation, repairs, utilities, condo fees and insurance. 8. Rent that you collect from the tenants is taxable to you, but your deductions can shelter some or all of the rental income. (You might be able to take a deductible loss if your adjusted gross income is below $150,000.) 9. Conduct the rental with your child as if it was an “arms-length” transaction between unrelated people. The IRS can be suspicious of business deals between family members. Check with your tax adviser before structuring the arrangement. 10. You might want to sell the property once your student graduates. Hopefully, it will appreciate handsomely by then. And fortunately, the rate currently charged on long-term capital gains from business real estate is no more than 15 percent. And if you sell at a loss, you can deduct that amount because it comes from business property – unlike losses from personal residences that cannot be written off.

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