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I'm trying to understand when it would be beneficial for the parent to be able to claim their child as a dependent and then not do so. It sounds like the parent can claim the dependent if the child doesn't provide more than 50% of their support from earned income plus loans. My son is right around the 50% line.

So lets break your post down.

My son only spent about 3 weeks at my house last year. He lived off-campus at college for 5 months, in another state on an internship for 3 months and then in Europe on study abroad for the last 4 months of the year.

Irrelevant really. Per IRS Publication 970, page 27, third column (https://www.irs.gov/pub/irs-pdf/p17.pdf)

Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as:

•Illness,

•Education,

•Business,

•Vacation

,•Military service, or

•Detention in a juvenile facility

Therefore the student is considered to have lived with you the entire year - evern single day.

His income from work and student loans was $20k.

Just to clarify for others reading this, there is no limit on the student's income. The student could earn a million dollars (literally!) and still qualify as a dependent.

He got another $19k in scholarships.

Things like scholarships are considered 3rd party support, and do not count for the student having supported themselves.

The only thing I paid for were some clothes and occasional groceries (plus covering his health insurance, at no additional cost to me). 

There is no requirement anywhere in IRS Publication 17 or IRS Publication 970 that requires the parent to provide the student any support. Not one single penny. Any monies you the parent provided to the student is considered 3rd party support.

I think we would say that I cannot claim him as a dependent

Well, it depends. There are only two possible ways a student can provide more than half of their own support. But first, you have to clarify just what counts as support. Support includes:

- Education costs (tuition, books, and lab fees.)

- Housing costs (rent plus utilities)

- Transportation costs

- Clothing costs

- Entertainment costs

I can tell you right now that if the total of all third party support from all sources (including the parents) exceeds the student's earned income for the year, then while not impossible, it is highly unlikely the student could support any claim to having provided more than half of their own support for the entire tax year. Two ways the student can provide more than half of their own support are:

1) The student was self-employed or had a W-2 job and the taxable income earned was sufficient to justify a claim to providing more than half of their own support. The taxable earned income would also need to be more than the total of all third party support received during the tax year.

2) The student is the *PRIMARY* borrower on a qualified student loan and sufficient funds were distributed to the student during the tax year to justify the student's claim to providing more than half of their own support. The funds distributed would also need to exceed the total of all third party support received by the student during that same tax year.

A combination of 1) and 2) would make it possible too. But it's also possible for the student to have earned a million dollars, and still not be able to justify a claim to having provided more than half of their support. The main thing for this is that costs must be "realistic".

For example, if the student received $80K in scholarships, grants, 529 distrubtions and other 3rd party sources, that would mean the student would need "at least" one dollar more than $80 of eather earned income or borrowed funds to have any claim to providing more than half of their support. But this is were those "realistic costs" come into play. You would have to be able to justify (and prove if audited) that it costs the student more than $160K to support them for the entire tax year. For an undergraduate, that's not anywhere close to realistic.

In other words, a $5000 a month penthouse suite for an undergraduate isn't going to cut it with the IRS. Likewise, neither will steak and eggs for breakfast and steak and lobster for lunch and dinner everyday, either. That $60,000 BMW the student pruchased for transportation? Definitely not realistic for an undergraduate.

and he would answer that he is not a dependent and no one can claim him as one, but answers to other questions on this forum are making me question that. 

That is not what the question is asking on your student's return. The question is asking if anyone else *QUALIFIES* to claim him as a dependent. Weather you actually claim him or not does not matter.

In other words, you the parent may have a choice weather to claim the student as your dependent, or not. But the student does not have a choice. If you the parent "qualify" to claim the student as your dependent, then the student has no choice and *must* select the option for "I can be claimed on someone else's tax return". Again, the student has no choice. The parent "does" have a choice.

So for your son with $20K of a combination of earned income and borrowed funds on a loan where your son is the primary borrower, the reason I doubt that's enough for him to provide more than half of his own support is because of the fact he attended school in a foreign country. While It's possible, with only $20K of self-support income for your son, I would think that more than $40K was spent during the tax year for his support needs as identified above. Therefore he would qualify as your dependent.