Student Loan Interest Deduction -- Who Can Legally Claim it?

[eapples]

I am the co-signer on my daughter's student loans.  She was a dependent when the loans were taken out; but, she is currently married and is not my dependent.  I want to take over making the payments on the loans; but I want her to be able to claim the interest deduction.  Can we do that without running afoul of the IRS?

[Bsch4477]

Can You Claim the Deduction?
Generally, you can claim the deduction if all of the follow- ing requirements are met.
• Your filing status is any filing status except married fil- ing separately.
• No one else is claiming you as a dependent on his or her tax return.
• You are legally obligated to pay interest on a qualified student loan.
• You paid interest on a qualified student loan.

If you pay the interest on the loan only you can claim the deduction. Just gift her the money to pay the loan so she can deduct the interest. 

[eapples]

Bsch4477:  Thanks for the clarification.

I was gifting her the money; but, she missed a few payments -- that's why I wanted to take over making the payments.

[Hal_Al]

Q. I want to take over making the payments on the loans; but I want her to be able to claim the interest deduction.  Can we do that without running afoul of the IRS?

A. Yes

Pub970: Student Loan  "Interest paid by others.   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest."

Reference: https://www.oregonlive.com/taxes/2011/02/can_i_claim_the_student_loan_i.html

[Bsch4477]

@Hal_Al  is correct. Even though you pay the interest your daughter can deduct it. See Pub 970 pg 34-35. 

[eapples]

Bsch4477:  Thank you, again, for your help.  I want to be absotively posilutely sure -- even though I am the co-signer on the loan, and I am obligated, as the co-signer, to make payments on the loan, my daughter can take the deduction for the interest payments if I am the one who's making the loan payments.

[Bsch4477 · Accepted solution]

Yes. Because she is also liable for the loan.