Q. Does that mean we can no longer claim him as a dependent?
A. No. The IRS does not go by FASFA rules.
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
He is still considered a NY resident as long as he is your dependent (and probably even if he isn't your dependent). So he files both a CO nonresident return and a NY resident return. NY will give him a credit for CO tax paid.
Getting a BS/BA earlier in 2024 means that his 2024 graduate education costs still qualifies for the more generous American Opportunity Credit (AOC) (assuming you/he haven't already claimed it the maximum 4 times). Whether you/he claims the AOC or the Lifetime Leaning Credit (LLC), it's usually best if the parent claims it (depending on the amount of income you each have).
