UTMA distribution

[Margaret CPA in OH]

Client has dependent daughter in college with UTMA account in daughter's ssn.  Securities sold for school expenses with cap gains of $2300.  I don't have all the school expenses yet but think this should be on daughter's return but mom takes education credit beyond what was spent from this.  What say y'all?

[Yardley CPA]

If the UTMA is in the daughter's ssn, I believe that type of cap gain would require a return to be filed for the daughter. 

I'm sure you're well aware of the filing requirements but I add this link simply as an FYI:

http://www.efile.com/how-does-a-dependent-file-an-IRS-income-tax-return/

 

[Margaret CPA in OH]

Yes, of course I know the daughter must file as she also has W-2 wages. In fact, I also know that Form 8615 is called for.  My question is about mom taking all education expenses above this amount for the education credit.  I think it reasonable to assume (also given mom's note) that these funds were used for college expenses but anything beyond is on mom's return as daughter is dependent (and financially she is even with wages and this income).

[jasdlm]

I would include the education expenses on Mom's return.  I believe tuition paid with UTMA accounts is treated like Student Loans and can go on the return of the person claiming the dependent.

This is from Pub 17:

Who can claim a dependent's expenses.   If an exemption is allowed for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Therefore, only that person can claim an education credit for the student. If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit.

 

Expenses paid by a third party.   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Therefore, you are treated as having paid expenses that were paid by the third party. For more information and an example, see Who Can Claim a Dependent's Expenses in Pub. 970, chapter 2 or 3.

 

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To me, the only verification would be that the parent contributed more than 50% of the total support, which you have already verified.

 

[Margaret CPA in OH]

Thanks for this and I actually remember this now.  It's just been a while since I've had college students of clients.  Most of my current clients are, well, of a certain age past having college age kids.

Yes, mom does provide much more than 50% of total support.