So you own a rental property and are going through a separation or divorce. Now you need to figure out how your rental income will impact your child support payments. I get it, this stuff can get confusing fast. But have no fear – I’m here to walk you through the key steps and considerations in a simple, easy-to-understand way. Stick with me and you’ll be a child support calculation pro in no time!
What Factors Into Child Support Calculations
When determining child support amounts, the court needs to understand both parents’ financial situations. This includes looking at your gross income from all sources. Besides your normal wages and salary, gross income can also include:
Other Income Sources
- Rental income
- Money from side businesses
- Investment earnings
The court may also consider certain deductions and additional factors like:
Deductions and Additional Factors
- Property taxes
- Union dues
- Timesharing and custody arrangements
- Health insurance costs
- Child’s age
- Childcare costs
So rental income gets factored in along with these other elements when making child support calculations.
How Rental Income Gets Calculated
Figuring out your rental income for child support purposes involves a few key steps:
Determine Gross Rental Income
First, add up all the money you’ve received from tenants over the year. This gives you your annual gross rental income before accounting for expenses.
Example: $2,000 monthly rent = $24,000 gross annual rental income
Deduct Allowable Expenses
Next, tally up these common allowable expenses associated with your property:
- Property taxes
- Mortgage interest
- Insurance costs
- Repairs and maintenance
- Property management fees
- Homeowners association dues
- Accounting/legal fees
Example expenses: $1,500 property tax + $6,000 mortgage interest + $800 insurance + $2,000 repairs + $1,200 depreciation + $1,500 utilities/fees = $12,000
Calculate Net Rental Income
Take your gross rental income and subtract total allowable expenses. The remainder is your net rental income amount for child support purposes.
Example: $24,000 gross income – $12,000 expenses = $12,000 net rental income
Easy enough so far, right?
State-Specific Calculation Models
This is where things get a tad more complicated. The exact percentage of net rental income that applies to child support varies by state. There are a few main models:
Income Shares Model
Used in 41 states. Factors in both parents’ incomes and aims to mimic the support amount if the parents stayed together.
Used in 3 states. Considers additional expenses and looks more closely at parents’ financial needs.
Percentage of Income Model
Used in 6 states. Applies a flat or adjusted percentage of the non-custodial parent’s income.
I’ll walk through a detailed example using the percentage model so you can see how the math works.
Step-By-Step Guide to Calculating Support
Follow these steps when tallying your rental income for child support purposes:
Pull together tax returns, bank statements, rental agreements, invoices, and other paperwork tied to your rental property income and expenses.
Calculate Gross Rental Income
Add up all rents received from tenants over the past year.
Example: $24,000 gross annual rent
Identify and Tally Allowable Expenses
List out allowable expenses like property taxes, mortgage interest, repairs, management fees, etc. Add up the total.
Example: $12,000 allowable expenses
Deduct Expenses to Determine Net
Take your gross income and subtract allowable expenses. This gives you net rental income.
Example: $24,000 – $12,000 = $12,000 net
Consult State Guidelines on Income Percentage
Check your state’s child support guidelines for the percentage of net income that applies to support based on number of children.
Example: 20% for 2 children
Apply Percentage to Net Rental Income
Multiply net income by state guideline percentage. This gives the rental income portion of child support owed.
Example: $12,000 net x 20% = $2,400 child support
Boom! There you have it. That’s the step-by-step method for arriving at a rental income value for child support calculations.
How can I accurately calculate rental income if I am living with my parents and not paying rent?
Key Things to Keep In Mind
A few other important tips to remember:
Claiming Rental Losses
Some states allow you to claim rental losses to offset income. Meaning if your property operates at a loss after expenses, you may be able to deduct the loss from your total income.
Providing Income Documentation
Be ready to show detailed documentation on your rental income and expenses. This helps verify the figures used in support calculations.
If the court believes you are earning less than you could be by choice, they may “impute” additional income to prevent skirting support obligations.
Modifying Support Over Time
Support orders can be reassessed periodically if income or custody arrangements change substantially.
Getting Professional Help
Consulting lawyers or financial experts can help ensure proper calculations and fair support amounts. Don’t be afraid to ask for assistance navigating this process!
I know that was a boatload of information. Let’s recap a few common questions on this topic:
Rental Income and Child Support FAQs
Does receiving rental income affect the custodial parent?
Yes, the custodial parent’s rental earnings get factored into child support calculations too.
How do you calculate the percentage of income from rentals?
Divide net rental income by total gross income from all sources to find the percentage of earnings from rentals specifically.
Can rental property losses offset income?
Potentially yes, depending on state laws related to deducting rental losses.
What proof of rental income is needed?
Expect to provide documentation like tax returns, bank statements, rental agreements, and expense invoices.
I hope this overview has shed some light on how rental income gets factored into child support figures. I know these kinds of calculations can be intimidating. But taking it step-by-step helps make the process manageable. The key is making sure the numbers accurately reflect your true financial situation. Don’t hesitate to get help from legal and finance pros if needed!
With the right guidance, you’ll get through this with the fair, reasonable outcome we all want for the children involved. Best of luck!