@shawnMsrm said "we cannot claim our full time student daughter as a dependent because we did not provide more than half of her annual support."
That may not be true.
There are two types of dependents, "Qualifying Children"(QC) and standard ("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.
The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.
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. Note that it is not necessary that you provided more than half her support. Student loans, solely in her name, are considered her supporting herself. But, if you co-signed they, are not considered her supporting herself.
- He lived with the parent (including temporary absences such as away at school) for more than half the year
