This document discusses different co-ownership structures for property purchased through the Zero College Debt Program. It provides examples of 50/50 ownership and 10% parent ownership, comparing tax implications. For maximum deductions, the student should own 100% but parents can co-sign loans. A legal contract outlining roles and responsibilities is recommended to formalize co-ownership arrangements. Consultation with tax and legal experts is advised to determine the best structure.

1. Co-ownership and Shared Equity arrangements The Zero College Debt Program™

2. The Zero College Debt Program In the Zero College Debt Program, we recommend that students purchase property in their college town to reduce costs, generate an income and get tax advantages. Many families ask about how the ownership of the property should be structured. This presentation will help you understand some of the aspects how the ownership should be set up. We always recommend that you work with a CPA to help you make the right decisions for your family to maximize your savings. Here is Kevin Ruff, CPA to talk with you about some of the decisions to be made and how they will impact you and your finances.

3. What is co-ownership? “ When relatives purchase with other relatives, the occupant-relative can own a % of the property and the non-occupying relative can also own a %.” We will explore the different co-ownership possibilities and advantages for you and your child. What % ownership is necessary to qualify as an active investor? Why is this important?

4. What is co-ownership? Co-ownership arrangements allows both parties to take advantage of tax deductions. Disclaimer: you should work with your CPA or tax advisor to get the best decisions for your situation. This is a general presentation on the concept, not individual advice on your situation. The maximum allowable tax deduction for investment properties is $25,000/ year. How do you participate in this?

5. Co-ownership Rules Rules to qualify for the investor/relative to take tax deductions associated with the rental property: The dwelling must be the principal residence of the renter (relative). The renters must pay a fair market rent if unrelated to the co-owner investor. (in our examples the renter is related) The investor/ relative must own at least 10% of the property to qualify for tax deductions. The relative investor must make material decisions related to the rental and repairs of the property.

6. Example 1: 50-50 ownership Example used for illustration only Home shared with renters @ $400 each *3= $1,200/mo Depreciation based on $160,000 improvements/27.5 yrs=$5,842.40/yr *.75 Income shared by parents and student, reflected in Taxes. Purchase home $200,000 Combined amounts Child’s share if 50% ownership Parent’s share if 50% ownership Purchase Price $200,000.00 $100,000.00 $100,000.00 Down payment 10% $ 20,000.00 $ 10,000.00 $ 10,000.00 Mortgage Loan 90% $180,000.00 $ 90,000.00 $ 90,000.00 Mortgage Payment (PITI) $ 1,373.86 $ 686.93 $ 686.93 Actual collected rent $ 1,200.00 $ 600.00 $ 600.00 Total mo. out of pocket cost $ 173.86 $ 86.93 $ 86.93 Note:

7. Example 1: 50/50 ownership Purchase home $200,000 Combined amounts Child’s share if 50% ownership Parent’s share if 50% ownership Less Tax Deductions: Yearly Interest on mortgage $10,740.00 $5,370.00 $5,370.00 Taxes on property $2,000.04 $1,000.02 $1,000.02 Insurance on property $600.00 $300.00 $300.00 PMI $936.00 $468.00 $468.00 Repairs $1,200.00 $0.00 $1,200.00 Miscellaneous $800.00 $0.00 $800.00 Depreciation -student can only claim 75% depreciation of 50% $5,842.40 $2,190.90 $2,921.20 Total Tax Deductions $22,118.44 $9,328.92 $12,059.22 Minus rent collected -$7,200.00 -$7,200.00 Estimated Annual Deductions $2,128.92 $4,859.22

8. Example 2: 10% Parent Ownership Example used for illustration only Home shared with renters @ $400 each *3= $1,200/mo Depreciation based on $160,000 improvements/27.5 yrs=$5,842.40/yr Purchase home $200,000 Combined amounts Child’s share if 90% ownership Parent’s share if 10% ownership Purchase Price $200,000.00 $180,000.00 $ 20,000.00 Down payment 10% $ 20,000.00 $ 18,000.00 $ 2,000.00 Mortgage Loan 90% $180,000.00 $ 162,000.00 $ 18,000.00 Mortgage Payment (PITI) $ 1,373.86 $ 1,236.47 $ 137.39 Actual collected rent $ 1,200.00 $ 1,080.00 $ 120.00 Total mo. out of pocket cost $ 173.86 $ 156.47 $ 17.39

9. Example 2: 10% Parent Ownership Purchase home $200,000 Combined amounts Student’s share if 90% ownership Parent’s share if 10% ownership Less Tax Deductions: Yearly Interest on mortgage $10,740.00 $9,666.00 $1,074.00 Taxes on property $ 2,000.04 $1,800.04 $ 200.00 Insurance on property $ 600.00 $ 540.00 $ 60.00 PMI $ 936.00 $ 842.40 $ 93.60 Repairs $ 1,200.00 $ 0.00 $1,200.00 Miscellaneous $ 800.00 $ 0.00 $ 800.00 Depreciation (student can only take 75% of 90%) $5,842.40 $3,943.62 $ 584.24 Total Tax Deductions $20,657.84 $16,792.06 $4,011.84 Minus rent collected -$14,400.00 -$12,960.00 -$1,440.00 Estimated Annual Deductions $ 6,257.84 $3,832.06 $2,571.84

10. What is the impact of this change? When the parent owns only 10% of the property, they can still claim deductions against the property up to $25,000/year. This is all dependent on the parent’s tax bracket and total AGI. If combined income is over $150,000, this deduction is phased out. It is important when you set this up that you look at all your potential deductions and maximize your benefits.

11. Example 3: 100% student owner Example used for illustration only The parents are the co-signor on the loan and own no part of the property for tax purposes . Student takes in renters (if 4 BR, take in 3 renters and generate an income).Est. $400/renter Purchase home $200,000 Tax implications Purchase Price $200,000.00 Down payment 10% $ 20,000.00 Mortgage Loan 90% $180,000.00 Mortgage Payment (PITI) $ 1,373.86 Actual rent $ 1,200.00 $400*3 = $1200 Income Total mo. out of pocket cost $ 173.86 Depreciation $5,842.40/yr est.$160,000/27.5 *.75 =$4,381.80

12. Example 3: 100% student owner Purchase home $200,000 Total expenses and deductions Allowed Deductions Tax implications Less Tax Deductions: Yearly Interest on mortgage $10,740.00 $10,740.00 Deductible Taxes on property $ 2,000.04 $2,000.04 Deductible Insurance on property $ 600.00 .75 * 600 = $450.00 Proportional deduction PMI $ 936.00 $936.00 May be deductible Repairs $ 1,200.00 .75*1200= $900.00 Proportional deduction Miscellaneous $ 800.00 .75*800= $600.00 Proportional deduction Depreciation@ 75%-student cannot depreciate portion they use. $5,842.40 $4,381.80 Proportional deduction Minus Rents -$14,400.00 - $14,400.00 Income Estimated Annual Deductions $ 7,718.44 $5,607.84

13. Putting a contract in place We recommend that you sit down with your child and draw up an agreement. As part of our program, we will provide you with a sample document that you can use to craft your agreement. This is ONLY provided when you are ready to purchase a property through one of our affiliate REALTORS. As always, we recommend you confer with an attorney and your CPA to determine the best structure for your situation. Go to: http://www.zerocollegedebt.com and sign up today! Maximize your tax advantages and help your child learn about investing and managing money: This is Real Life Learning™ they can use for the rest of their lives to build wealth!

14. Key elements of contract Purpose of the agreement Ownership interest (% ownership) Responsibilities and restrictions Right to sell ownership interest/buy out price Division of profits from property sale Lease agreement Deposits, reserves, replacements, repairs, maintenance New owners obligations under agreement Default terms and language Termination of contract Signatures and agreement to be bound by contract

15. Contact Information: Terry J. Toomey The Zero College Debt Program™ Austin, TX [email_address] or http://www.zerocollegedebt.com and go to Sign Up Developed in cooperation with: Kevin Ruff CPA, Greenville, SC [email_address] http://www.ruffcpa.com Thank you for your participation. © 2009 Copyright ZCD Properties Inc. All Rights Reserved