18yo left home and got financial aide

[spannerx]

My wife and I had legal guardianship of our nephew. He turned 18 in April, ending our guardianship, but he continued to live with us until mid-July. When he moved out, he moved back in with his mother (my wife’s sister). He started junior college and signed up for and began receiving federal financial aide.

My wife and I plan to claim him as a dependent on our taxes as he lived with us for more than half the year. Does his receiving financial aide after he moved out affect our taxes in any way? 

[Bsch4477]

Since he lived with you more than half a year and if he didn’t provide more than half of his support you can claim him. A scholarship received by a
child who is a student isn't taken into account in
determining whether the child provided more
than half of their own support.

[xmasbaby0]

If your nephew lived with you from the beginning of 2023 until mid-July, he was with you for more than half the year, and you can claim him.   You might have a problem if his parent claims him and files first.  If that happens, you will have to file your return claiming him by mail and let the IRS sort out which one of you can claim him.   

So that you know-----what is at stake is a non-refundable $500 credit for other dependents , and maybe...earned income credit .

https://ttlc.intuit.com/questions/4499708-what-is-the-500-credit-for-other-dependents-family-tax-cre...

WHO CAN I CLAIM AS A DEPENDENT?

You can claim a child, relative, friend, or fiancé (etc.) as a dependent on your 2023 taxes as long as they meet the following requirements:

Qualifying child

• They're related to you.
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They're under the age of 19 (or 24 for full-time students).
• No age limit for permanently and totally disabled children.
• They lived with you for more than half the year (exceptions apply).
• They didn't provide more than half of their own support for the year.

Qualifying relative

• They don't have to be related to you (despite the name).
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They lived with you the entire year (exceptions apply).
• They made less than $4,700 in 2023.
• You provided more than half of their financial support.

When you add someone as a dependent, we'll ask a series of questions to make sure you can claim them. There may be other tax benefits you can get when you claim a dependent.

[Hal_Al]

@xmasbaby0  said: "So that you know-----what is at stake is a non-refundable $500 credit for other dependents , and maybe...earned income credit."

There may also be a tuition credit available of up to $2500.  It somewhat depends on what the "financial aid" is, loans or scholarships. Even if it's scholarships, there is a "loop hole" available to still be able to claim the credit. Students are generally not eligible for this credit. It's best claimed by the parents (or aunt/uncle) who claim them as a dependent.  There is an income limit ($180K, phase out starting at $160K). The student must be half time or more. See below for details.

______________________________________________________________________________________

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.

If the student's total taxable scholarship (and other income) is less than $13,850, he will pay not tax.

[Opus 17]

A nephew is a close enough type of relative that you don't have to be a legal guardian to claim him as a dependent.  Based on the fact that he lived in your home more than 183 nights, was under age 19 on December 31, 2023, and did not provide more than half own support (considering the year as a whole), you may claim him as a dependent this year.  

Note that if his parent also claims him, or he claims that "no one else can claim me as a dependent", and one of those person's e-files first, you will probably be blocked from e-filing.  To proceed with the dependent claim, print and mail your return.  The IRS will sort it out by investigating all sides of the conflicting claims.