Q. He was required to take approx 3xxx out in student loans. Do I claim that anywhere and does that change the scenario?
A. No. For tax purposes, loans are irrelevant.* Expenses paid with loan money are treated the same as expenses paid out of pocket.
Q. I also read that unqualified expenses for scholarships were unearned income and needed to be claimed over 1300.
A. Not exactly**. See the previous explanation about being "hybrid". Once $14,600 is exceeded, it will be taxed as unearned income. Better stated: it is earned income for the purpose of calculating the dependent's standard deduction (earned income + $450). A dependent with other unearned income would only get a $1300 standard deduction.
*Except the student loan interest deduction.
** It might best be explained by example. Student has wage income of $6000 and $10,000 in taxable scholarship. $16,000 total income minus $14,600 standard deduction = $1400 of taxable income. The $1400 is unearned income and subject to the kiddie tax (taxed at the parent's marginal rate, not the student's 10% first bracket rate).
