Married Filing Separately so mother can claim as dependent and claim education credits?

[ladicen]

My wife and I want her to be claimed as a dependent by her mother so that her mother can claim education credits since she is the one who paid for everything.

We married on 12-27-15, my wife's income was less than $2,000, she is under 24, and her mother took care of 100% of her expenses in 2015.

To do this, we believe it should be as simple as this:

1) Wife and I file MFS (I claim 1 exemption for myself, she claims 0)
2) Her mother then claims her as a dependent
3) Her mother can now claim the necessary education credits

But we have some things holding us up. This is where we need some clarification before moving forward.

On this website, https://www.irs.gov/Individuals/Education-Credits-AOTC-LLC,  it states:

Who cannot claim an education credit?
You cannot claim an Education Credit when:
1) Someone else, such as your parents, list you as a dependent on their tax return
2) Your filing status is married filing separately
3) You already claimed or deducted another higher education benefit using the same student or same expenses (see 5) Education Benefits: No Double Benefits Allowed for more information)
4)You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes (find more information in Publication 519, U.S. Tax Guide for Aliens)

and

Watch out for these common errors made when claiming education credits
1) Students listed as a dependent or spouse on another tax return

I'm interpreting rule 2) as "You/Your" meaning my wife, which means my wife cannot claim the education credit for herself if she files MFS. Is this correct?

Rule 1) "Spouse on another tax return" is a little more confusing. I legally have to put my wife down on my MFS. Does her being listed as my spouse on my MFS, even with no claims or exemptions made, then prevent her mother from claiming the education credits?

If her mother should be able to claim her as a dependent, if we file MFS, then her mother should be able to claim the education credits, right?

Or is it really that "Your filing status is MFS and you are listed as a spouse on another MFS" and now whoever can legally claim you as a dependent cannot claim your AOC/LLC/education credits?

Help is much appreciated!

[Carl]

I think you have a handle on it. Item #2 applies to the student. If the STUDENT is filing MFS, then the STUDENT can not claim the education credits. It is important that for the two of you, the student does not take the self-exemption OR the exemption for you (since she has to put your SSN on her tax return). The same holds true for you too. While you the non-student will take the self-exemption, make sure you do not take the exemption for her, since you have to include her SSN on your tax return.

Finally, since you two are filing MFS, understand that if one of you itemizes deductions, then you both MUST itemize deductions. Even if that means the itemized deductions for one of you adds up to zero. This is why the IRS requires the spouses SSN on an MFS return - they use it to confirm you both itemized, or you both took the standard deduction.

[ladicen]

Thank you, Carl. There are no itemized deductions on either of our taxes. I claimed only 1 exemption for myself, no exemption on her.

Can you offer any clarity into item #1, where it states "Students listed as...spouse on another tax return".

Would my listing her as my spouse on my MFS taxes then prevent her mother from claiming the education credits?

[Carl]

She is not listed as a spouse "per-se" on your return. You're filing MFS. The only reason her SSN is on your return, is so the IRS can confirm you both do the same when it comes to standard deduction. @TaxGuyBill I worked this through a test scenario as both the student filing MFS not taking the self-exemption, and the parent claiming the married student. Seems to work just fine in the program, in line with the way I am interpreting the IRS Pubs. Do you agree?

[Carl]

@dmertz @VolvoGirl

[TaxGuyBill]

Sounds good to me.

[Carl]

Thanks. His confusion never occurred to me - until he pointed it out. So I wanted some backup on this to be sure.

[macuser_22]

It should be fine as long as she files a married filing separate return and marks the box that she can be claimed as a dependent by another taxpayer.  If her income was less than $2,000 then she would not need to file at all unless there was tax withheld and she wants a refund.

[ladicen]

Thanks again, Carl and Bill.

Just for final clarification, you are saying that even with the rule:

Watch out for these common errors made when claiming education credits
1) Students listed as a dependent or spouse on another tax return

Her mother will be able to claim her education credits?

[Carl]

yes. Your wife is NOT listed as a student OR a dependent on your tax return. She can't be. A married person can't be claimed as a dependent on the tax return of the person she's married to.. Read that LITTERALLY. Then under the Personal Info tab in your tax return, note that the dependent's section does NOT have your wife listed there. (If she is, you incorrectly claimed her as your dependent.)

[macuser_22]

She is not "listed" on another return if it is not a joint return.   You put her name and SSN on a separate return only so the IRS can make sure that both spouses follow the itemizing/standard deduction rule.

[Carl]

reread above. Corrected a typo that makes a difference.

[ladicen]

Under the Personal Info Tab, her name and SSN are below mine, but she is not in the "Dependents" area. This is fine, correct?

Forgive my constant questioning. I have 20 people saying we are right, but my mother in laws tax guy is saying we are wrong. And mother in law is friends with this guy, so she is being defensive of him. This is a guy who didn't ask what date we were married and tried to file my wife as single, and claims her mother cannot claim her as a dependent because we are married, and that no matter what her mother can't claim the education credits anymore. He's saying we have to do MFJ or we lose the money. I'm getting nitty-gritty with the details because I want to show this guy is wrong and get things straightened out.

[macuser_22]

Correct.

Refer their "tax guy" to IRS Pub 17 "Qualifying Child".
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p17/ch03.html#en_US_2015_publink1000170876">https://www.irs.gov/pub...>

"Joint Return Test (To Be a Qualifying Child)

To meet this test, the child cannot file a joint return for the year. "

As long as she does not file a *joint* return, being married is not an issue.

[macuser_22]

The only requirements are:
1) She was a full time student for any part of 5 months in 2015 under age 24,
2) She did not pay more than half of her own total support,
3) She lived with her parents more than half of 2015 (time away to attend school counts as time lived with parents),