Taxable scholarship and dependency

[Ambabje]

My daughter received $16k in scholarships which covered all of her school expenses (tuition and room/board.) The scholarships were a mixture of Pell grants and an off campus scholarship from her job in her home state that could be used for any education expenses. In order to claim an education deduction she needs to claim $10k of the $16k as taxable income. Since she is now claiming that as income is that taxable scholarship now considered her providing her own support? Or can I still claim her as my dependent even with her claiming $10k as taxable scholarship income? She lives at home during the summer and during winter vacations. 

[Hal_Al]

Q. Can I still claim her as my dependent even with her claiming $10k as taxable scholarship income? 

A. Yes.

Q. Since she is now claiming that as income is that taxable scholarship now considered her providing her own support? 

A. No. Scholarships are ignored in the support calculation, even when the scholarship is taxable to the student. 

[Ambabje]

Does it make a difference if the tax-free/taxable financial aid is a pell grant when determining if its student self support? Or are pell grants considered scholarships whether it’s taxable or tax-free? Therefore a tax-free or taxable scholarship/pell grant/off campus scholarship is not considered as her providing her own support? 

In addition, I was reading some of your responses to others and I want to make sure I understand correctly. The majority of her total expenses for the year would’ve been covered by scholarship/pell grant. We do provide her a home/food/insurance etc when she’s home from college but what we pay I don’t think equals the amount of scholarship/pell she receives. Yet, we can still claim her as a dependent because the majority of her expenses are paid from taxable and tax-free scholarship/pell grant?

[Hal_Al · Accepted solution]

Q.  Does it make a difference if the tax-free/taxable financial aid is a pell grant when determining if its student self support?

A. No.

Q. Or are Pell grants considered scholarships whether it’s taxable or tax-free?

A. Yes.

Q. Therefore a tax-free or taxable scholarship/pell grant/off campus scholarship is not considered as her providing her own support? 

A. Yes

Q. The majority of her total expenses for the year would’ve been covered by scholarship/pell grant. Yet, we can still claim her as a dependent even though the majority of her expenses are paid from taxable and tax-free scholarship/pell grant?

A. Yes. 

The rule is: for the support calculation, you ignore the scholarship money and everything it pays for.  You count only the support provided by other money.  

The rule was written that way specifically, for people in your situation.  Scholarships do not prevent the parent from claiming the student as a dependent. 

[Ambabje]

Thank you for your clear response. Just to confirm:

If her annual expenses are:

$16k college tuition/room and board (all paid by scholarship)

$7500 other expenses (share of parents home, insurance, transportation etc)

If she pays $4k of the other expenses then she is considered to have paid more than half of her support for the year?

[Hal_Al · Accepted solution]

Q. If she pays $4k of the other expenses then she is considered to have paid more than half of her support for the year?

A. Yes. 

But, the support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.  A student "away ay college" is still considered as living at home  for  the dependent support and residency tests.