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Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth. For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation. In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home. If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test. Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well. The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.
While your individual circumstances will vary, the following table sets forth examples of calculations under the net worth test in order to determine crowdfunding investment limits:
|
Jane Doe |
John Smith |
James Lee |
|
|---|---|---|---|
| Primary residence (not included except for related liabilities below): |
|||
| Home value |
$300,00 |
$300,00 |
$300,00 |
| Mortgage |
200,00 |
200,00 |
330,00 |
| Home equity line: | |||
| – more than 60 days old |
– |
20,000 |
|
| – less than 60days old |
– |
10,00 |
– |
| Included assets: | |||
| Bank accounts |
$20,000 |
$20,000 |
$20,000 |
| 401(k)/IRA accounts |
100,000 |
100,000 |
100,000 |
| Other investments |
50,000 |
50,000 |
50,000 |
| Car |
20,000 |
20,000 |
20,000 |
| Total included assets |
$190,000 |
$190,000 |
$190,000 |
| Included liabilities: | |||
| Student and car loans |
$100,000 |
$100,000 |
$100,000 |
| Other liabilities |
20,000 |
20,000 |
20,000 |
| Portion of mortgage underwater |
– |
– |
30,000 |
| Home equity line (less than 60days old) |
– |
10,000 |
– |
| Total included liabilities |
$120,000 |
$130,000 |
$150,000 |
| Net worth |
$70,000 |
$60,000 |
$40,000 |
Source: SEC Investor Bulletin: Crowdfunding (Updated: February 16, 2016)
Additional Resource: “Know Your Net Worth”