Q. A UTMA that is fully in my name now that I am of age was used to pay tuition in 2023. Does that qualify as "Tax Breaks for College Tuition"?
A. Yes. UTMA money is the same as "out of pocket" money and counts as you paying the tuition and other expenses. Your education will qualify for a generous tuition credit.
Whether you claim the credit or your parents do does not depend on who paid the tuition. It only depends on whether they can claim you as a dependent. UTMA money spend on support is counted as your money for the dependent support test.
There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
- He lived with the parent (including temporary absences such as away at school) for more than half the year
So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on himself.
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.
The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf
But there's a big caveat against you claiming the credit.
A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion (up to $1000) of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, UTMA funds, 529 plans or student loans & grants. It is usually best if the parent claims that credit.
You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.
Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863
The UTMA as a savings vehicle for college is an old idea who's time was up decades ago. The spending of the funds may disqualify both the parents and the student from claiming the credit!
