Education Credit and Deduction

[uzek101]

I am assisting my fiancee with her taxes and had the following question:

Why is turbotax showing that she is ineligible for the education deduction? Unable to find any info on this.

Some facts:

She is a graduate student with her grad school loans in her own name. She is listed as a dependent by her parents.

[Hal_Al]

A dependent can not claim a tuition deduction or credit. 

Her parents may claim the deduction/credit on their return, even though their student-dependent paid the expenses, with her own loans. 

That's the rules. See IRS Publication 970.

[KathrynG3]

Dependents cannot claim education credits, even if they are assuming their own loans.

If she is older than 24, however, she technically cannot be claimed by her parents any longer. Please see these articles to learn more:

• 12 Tricky Tax Dependent Dilemmas 
• Who can I claim as a Dependent?

Grad students often have stipends or fellowships or possibly a grant that could have special tax treatment.

When she begins repaying her loan, she can claim a deduction. Here is an article for those steps: Where do I enter student loan interest?

Here are some additional resources to assist you:

• What education credits are available
   
• IRS Interactive Assistant: Am I eligible to claim an education credit?
   
• IRS Publication 970 Tax Benefits for Education 

[Hal_Al]

"If she is older than 24, however, she technically cannot be claimed by her parents any longer."

More accurately, if she is older than 24, she no longer qualifies as a "Qualifying Child" dependent.  But she may still qualify, as a dependent, under the "qualifying relative" rules. 

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. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. The support test is slightly  different for each type.

Full rules:

https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

If a  red flag needs to be raised about the parents claiming her as a dependent; it would center on the student loan. If her grad school loan provides more than half her support, she cannot be a dependent under either  type dependent.  But, if she still lives at home, the support value of the  home, her parents provide, is the fair market rental value + utilities and 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