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skycamper
Level 3

What kind of education credit or student loan interest can we deduct? Im going in circles!!

Im the sucker who does my families taxes such as parents, sister, brother, etc....

 

I have a situation,

My sister has been in college full time since fall 2015 and as a dependent on our parents taxes since that time.   So 2015, 2016, 2017, and 2018 we have claimed the American Opportunity Tax Credit (AOTC).    Now here we are in 2019 and she was full time in the winter to spring 2018-2019 and graduated in June 2019.    She lived mostly at home for 10 months of 2019 got a job and moved out, income of $12600 on her 2019 W2.  

Ok so far so good, she has almost no federal tax liability and is going to give Oregon a few hundred bucks.     She paid $612 in student loan interest, had $8600 in tuition payments and $1682 in grants for 2019.    I plug this info into my parents taxes and the deduction is $0   So I understand there is no more AOTC deduction since she has used up the 4 years.  Ok.   Turbo tax doesn't even bring up the Lifetime Learning tax credit or even any other education deduction after running through the entire education section.   In addition, turbo tax says the $612 in student loan interest paid in my sisters name cannot be claimed and must be claimed on my sisters tax return.  Ok go to my sisters tax return and plug it in and guess what??  Says no deduction can be had since she is a dependent claimed on my parents tax return.   What??  This is the circle I was talking about.  

 

Why no lifetime learning tax credit or Hope tax credit and where can this student loan interest be deducted?    

 

It gets better, On my parents tax return it says my sisters $1682 in grants has to be counted as income on my parents taxes since tuition claimed of $8600 is not qualified. 

Any help appreciated!  

Thanks

 

 

 

1 Best answer

Accepted Solutions
Hal_Al
Level 15

What kind of education credit or student loan interest can we deduct? Im going in circles!!

Lots of issues, in no particular order: 

The Lifetime Leaning Credit (LLC) is non refundable. If she has almost no federal tax liability, that's how much LLC she will get.

 

Her parents should claim her as a dependent (see "Graduation year" below). Her parents should get the LLC on their return, if they have a tax liability.  You have an entry error.  Just entering the 1098-T should be all you need. Try deleting and starting over.

 

Her parents cannot deduct her student loan interest, unless they paid it and were co-signers on the loan. She cannot deduct the interest if she is a dependent.

 

TT will never say sisters $1682 in grants has to be counted as income on their  taxes.  It will say it has to be claimed on the student return, if the parents claim the full $8600 on their return (and they should). Alternatively they claim 8600-1682, and the student claims no scholarship income.

 

There is no more "Hope" credit, been gone for years. Choices are LLC or Tuition and Fees deduction (TFD, restored by new law Dec. 2019). LLC is probably better.

 

I'm not familiar with Oregon tax rates, but  "she has almost no federal tax liability and is going to give the state a few hundred bucks", is not likely in most states.

 

It's complicated. You have multiple entry errors.  Start by deciding whether she will be a dependent or not.  That will dictate how the entries will be made.

 

__________________________________________________________________________

Graduation year

If he/she was a student (under 24) for at least 5 months and lived with you for more than half the year, and did not provide more than 1/2 his own support for the whole year, you can still claim him. Be sure he knows you're claiming him, so he doesn't claim himself. He can only be claimed once. But, he can "file taxes" without claiming his own exemption.

The real question is who should be claiming him in this "transition" year to adulthood. You two have to agree on who is going to claim his exemption. Each should do their taxes both ways and see which way the family comes out best.  Even then, you have to meet the rules. The rule is that a child of a taxpayer can still be a “Qualifying Child” dependent, regardless of  his income, if:

  1. he is a full time student under 24 for at least 5 calendar months of the year (graduating in May usually means you meet the 5 month rule)
  2. he did not provide more than 1/2 his own support (scholarships are considered 3rd party support and not support provided by the student). 
  3. lived with the parent (including time away at school) for more than half the year

 

So, it usually hinges on  "Did he provide more than 1/2 his own support in 2019.

The support value of the home you provided is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. IRS Publication 501 on page 20 has a worksheet that can be used to help with the support calculation. See: http://www.irs.gov/pub/irs-pdf/p501.pdf

View solution in original post

4 Replies
Hal_Al
Level 15

What kind of education credit or student loan interest can we deduct? Im going in circles!!

Lots of issues, in no particular order: 

The Lifetime Leaning Credit (LLC) is non refundable. If she has almost no federal tax liability, that's how much LLC she will get.

 

Her parents should claim her as a dependent (see "Graduation year" below). Her parents should get the LLC on their return, if they have a tax liability.  You have an entry error.  Just entering the 1098-T should be all you need. Try deleting and starting over.

 

Her parents cannot deduct her student loan interest, unless they paid it and were co-signers on the loan. She cannot deduct the interest if she is a dependent.

 

TT will never say sisters $1682 in grants has to be counted as income on their  taxes.  It will say it has to be claimed on the student return, if the parents claim the full $8600 on their return (and they should). Alternatively they claim 8600-1682, and the student claims no scholarship income.

 

There is no more "Hope" credit, been gone for years. Choices are LLC or Tuition and Fees deduction (TFD, restored by new law Dec. 2019). LLC is probably better.

 

I'm not familiar with Oregon tax rates, but  "she has almost no federal tax liability and is going to give the state a few hundred bucks", is not likely in most states.

 

It's complicated. You have multiple entry errors.  Start by deciding whether she will be a dependent or not.  That will dictate how the entries will be made.

 

__________________________________________________________________________

Graduation year

If he/she was a student (under 24) for at least 5 months and lived with you for more than half the year, and did not provide more than 1/2 his own support for the whole year, you can still claim him. Be sure he knows you're claiming him, so he doesn't claim himself. He can only be claimed once. But, he can "file taxes" without claiming his own exemption.

The real question is who should be claiming him in this "transition" year to adulthood. You two have to agree on who is going to claim his exemption. Each should do their taxes both ways and see which way the family comes out best.  Even then, you have to meet the rules. The rule is that a child of a taxpayer can still be a “Qualifying Child” dependent, regardless of  his income, if:

  1. he is a full time student under 24 for at least 5 calendar months of the year (graduating in May usually means you meet the 5 month rule)
  2. he did not provide more than 1/2 his own support (scholarships are considered 3rd party support and not support provided by the student). 
  3. lived with the parent (including time away at school) for more than half the year

 

So, it usually hinges on  "Did he provide more than 1/2 his own support in 2019.

The support value of the home you provided is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants. IRS Publication 501 on page 20 has a worksheet that can be used to help with the support calculation. See: http://www.irs.gov/pub/irs-pdf/p501.pdf

DMarkM1
Expert Alumni

What kind of education credit or student loan interest can we deduct? Im going in circles!!

Besides being nonrefundable for the daughter, I would also add take a look at limits for the Lifetime Learning Credit (LLC) for the parents.

  • For TY2019, the amount of the LLC is gradually reduced (phased out) if your MAGI is between $116,000 and $136,000 if you file a joint return.
  • You can’t claim the credit if your MAGI is $136,000 or more if you file a joint return.

And for more information here is a link to Publication 970.  

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Hal_Al
Level 15

What kind of education credit or student loan interest can we deduct? Im going in circles!!

The TFD income limit is $160,000.  If you do not qualify for LLC, TT will automatically select TFD for you.

skycamper
Level 3

What kind of education credit or student loan interest can we deduct? Im going in circles!!

Ok your answer makes sense to me.  Yes she is by all definitions a dependent for this last transition year on our parents return.   Shes 22, was a full time student for half the year, and lived at home.   Parents AIG runs around $80K to $90K.   So they do have tax liability.   I was able to delete her as a student and re-enter the 1098T and we claimed the LLC.    

 

Thank you!!  

 

 

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