Educ. credits

[imjulier]

You would think we'd all have this down by now but I am not able to find this answer in Express answers or US master tax guide. Does it matter who actually pays the education expenses for the Am Opp educ credit? Say child pays for education but parent still qualifies to claim student as dependent. I think the credit follows the exemption. Correct?

[taxtrio]

The Taxbook, page 12-3 says "Taxpayers can use payments made by their dependent to claim an education credit, including payments by third parties treated as paid by the student.

2nd column says" Students who qualify to calim and education credit can use payments by their parents or third parties to claim education credits. Payments are considered gifts to the student.

So, whoever qualifies to claim the dependent (The Parents or the Student themselves) gets to claim the college tax credit. Credit follows the dependent exemption. Doesn't matter who actually paid it. Even the laptop bought by gramma for the college student would count as "course Materials" for the credit... Neat Huh!!

Taxtrio

[imjulier]

Thanks taxtrio. I probably should have taken today off.

Julie

[Lion EA]

Well, it's not so neat when father pays for daughter's education and apartment and medical and cell phone and clothing and everything, but daughter spends more nights at mother's house who hasn't even bought food (mother has an eating disorder and does not keep food in her house) so mother gets the credit without ever spending on penny on education or even on her daughter. What really gets to me though, is mother is same size as daughter, so all the clothing and shoes we buy daughter end up on her mother! Come to think of it, most of daughter's cell phone bill is messages with her mother....

[jainen]

>>father pays for daughter's education and apartment and medical and cell phone and clothing and everything, but daughter spends more nights at mother's house<<

It looks to me like you are not interpreting the circumstances correctly. The personal exemption is based on rules for a qualifying child, under which support (except self-support) is NOT a factor.

The number of nights is also not a factor for a qualifying child. That is only used to determine the custodial parent for purposes of Form 8332, the release of exemption. I would hope that the best interests for a child's home and support are not superseded by the best tax breaks.

[Lion EA]

I still don't think it's so neat that father pays and mother deducts what father pays. And, my point was that support is NOT of any help at all to father, since as you say daughter is not self-supported. So, why am I not interpreting the circumstances correctly? As you state, the number of nights is used to determine the custodial parent. So, if father is not the custodial parent he doesn't get the exemption and doesn't deduct the credit. Not helpful if the tax code is trying to encourage education by offering the credit. But, the part that seems unfair is that someone (mother in this case) who does not pay the expenses DOES get to deduct the credit. Don't worry, this daughter is not denied any help with her education or other expenses by father or his family; tax benefits do not change their behavior. The situation was not created by daughter or father!

[jainen]

>>if father is not the custodial parent he doesn't get the exemption and doesn't deduct the credit<<

That is not true, at least, not necessarily true. The tiebreaker rules allow a parent to claim the exemption for a qualifying child even when he is not the custodial parent in terms of nights (other factors being favorable). In the case you describe, the father simply does not have a qualifying child. Even so, he could still take the exemption by agreement. That would presumably be through the divorce proceedings, and Congress apparently has decided it is most fair to let the family itself work that out rather than having the IRS interfere.

Frankly, I'm not real sure that the tax code actually allows a non-custodial parent to claim education credits anyway. It certainly does not in the case of Married Filing Separate or with more than $50,000 income (unless remarried).

But here is another possible view. Since the student has her own apartment, perhaps it could be argued that she does not actually reside with the mother, but only visits when convenient, less than half the time. In that case she would not be a qualifying child to anybody, so she would be a qualifying relative and dependent of the parent who provided more than 50% of her support.