Education Credit

[Max W]

Client's daughter, dependent, rec'd 1098-T.   Client earned $90K, daughter $1300.  Deceased father's trust paid $5500 tuition.

Any way that either daughter or mom can claim Ed Credits?

I think not, but just want a back up opinion.

TIA

 

[Catherine]

Not looking at the phase-out limits, what did dad's trust NOT pay?  Books, required fees, anything else required and eligible for credits that was not the $5,500 tuition?

[BulldogTom]

How did the trust pay for it?   Gift to the daughter for educational purposes?   I would like to know how that transaction went down.

Tom
Modesto, CA

[Jack from Ohio]

Not nearly enough information to give an informed answer.

[Abby Normal]

It's not an allowable trust deduction, so it becomes a distribution to the beneficiary. I'm leaning towards allowing the credit, because I've had divorced couples where the parent who paid the expenses did not claim the exemption that year, so the other parent got the credit.

[Max W]

 

1 hour ago, BulldogTom said:

How did the trust pay for it?   Gift to the daughter for educational purposes?   I would like to know how that transaction went down.

Tom
Modesto, CA

The trust paid for it.  There was no distribution to the daughter.

[DANRVAN]

Qualified education expenses paid by a 3rd party for the dependent of a taxpayer are considered paid by the taxpayer.

[Abby Normal]

12 hours ago, Max W said:

 

The trust paid for it.  There was no distribution to the daughter.

Except when the trust pays something for the beneficiary, it's a deemed distribution.

[BulldogTom]

1 hour ago, Abby Normal said:

Except when the trust pays something for the beneficiary, it's a deemed distribution.

That is where I was going.   And then, to follow my thought process, the expenses paid by the child can be deemed to have been paid by the parent.   I don't know what the phaseout is for the Ed Credits off the top of my head, but if the parent is otherwise eligible, then I think she can take the credit for the education paid for by the trust for the dependent daughter. 

It is no different than the child taking a student loan in her own name, and the payment goes strait to the institution for the tuition.  The parent can still take the ed credit.

Tom
Modesto, CA

[Max W]

This is sounding good, so far.  Abby says it is a deemed distribution.  There was nothing on the child's K-1, so would the distribution be income to the child?

[Abby Normal]

The amount of income in a distribution is calculated at the trust level. Impossible to say if the trust return was done right or not, but if it was right, expenses exceeded income in the trust and only principal was distributed.

[Max W]

It is a moot question, now. I see that the phase out for AOC, for HOH, is $90K, which is the exact amount earned.  It is even lower for Lifetime learning.

Thanks for all the input.  It has been very interesting.