CPA's please check in here - Student Loan interest question (1 Viewer)

[Mr.Pack]

Question about taking the credit for Student Loan interest.

Seems if I claim my daughter (25) as a dependent, she can't take the credit even though she 100% pays her student loans, I can take the credit. But if I don't claim her as a dependent, she can take the credit.

My question is, is there a way for me to claim her, but she gets to take the credit? Using Turbotax

 

[East Coast Bias]

CPA checking in.  I don't do taxes. Now checking out.

 

[Mr.Pack]

CPA checking in.  I don't do taxes. Now checking out.

Rodger

 

[mquinnjr]

CPA checking in.  I don't do taxes. Now checking out.

Same, but I'll give this a shot. It's not a two-way street. Meaning, you don't get to claim her as a dependent if she claims the student loan interest deduction, and vice versa. Two outcomes are possible:

- She claims the deduction, you can't claim her as a dependent.

- You claim her as a dependent, she can't claim the deduction.

Here's the IRS link and the relevant text: https://www.irs.gov/publications/p970/ch04.html

Can You Claim the Deduction?

Generally, you can claim the deduction if all of the following requirements are met.

Your filing status is any filing status except married filing separately.

No one else is claiming an exemption for you on his or her tax return.

You are legally obligated to pay interest on a qualified student loan.

You paid interest on a qualified student loan.

Claiming an exemption for you.   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c.

Example 1.

During 2016, Josh paid $600 interest on his qualified student loan. Only he is legally obligated to make the payments. No one claimed an exemption for Josh for 2016. Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2016 Form 1040 or 1040A.

Example 2.

During 2016, Jo paid $1,100 interest on her qualified student loan. Only she is legally obligated to make the payments. Jo's parents claimed an exemption for her on their 2016 tax return. In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2016.

Had this discussion with my dad the year I was filing after I graduated. Living at home for two years and using the savings to move out and buy a condo, we were very quickly able to conclude that I wasn't deducting student loan interest in those two years before I moved out.

 

[Mr.Pack]

Same, but I'll give this a shot. It's not a two-way street. Meaning, you don't get to claim her as a dependent if she claims the student loan interest deduction, and vice versa. Two outcomes are possible:

- She claims the deduction, you can't claim her as a dependent.

- You claim her as a dependent, she can't claim the deduction.

Here's the IRS link and the relevant text: https://www.irs.gov/publications/p970/ch04.html

Had this discussion with my dad the year I was filing after I graduated. Living at home for two years and using the savings to move out and buy a condo, we were very quickly able to conclude that I wasn't deducting student loan interest in those two years before I moved out.

Thanks. I found something similar, but just thought there had to be a way for her to claim it even though I was claiming her as a dependent. Seems wrong, but I'm no rocket scientist...lol

I won't be claiming her, she pays the loans, she should get to claim the deduction.

 

[munga30]

You likely have a lot more income than her given the setup, so your top bracket is higher than her top bracket.  Thus the deduction has more value for you because its dollars off the top of your income figure (AGI, maybe i forget the exact term).  So you claim it and gift her the cash for what she would have benefited had she claimed it.  You pocket the difference. Then you both benefit.  

 

[msudaisy26]

I went through this a while ago. Making a long story short, have an accountant find out which way you both with get back the most money and split it. 

 

[Mr.Pack]

You likely have a lot more income than her given the setup, so your top bracket is higher than her top bracket.  Thus the deduction has more value for you because its dollars off the top of your income figure (AGI, maybe i forget the exact term).  So you claim it and gift her the cash for what she would have benefited had she claimed it.  You pocket the difference. Then you both benefit.  

I was thinking about doing exactly this. I'm going to run the numbers again and see how they come out.

Thanks!

 

[Gawain]

You likely have a lot more income than her given the setup, so your top bracket is higher than her top bracket.  Thus the deduction has more value for you because its dollars off the top of your income figure (AGI, maybe i forget the exact term).  So you claim it and gift her the cash for what she would have benefited had she claimed it.  You pocket the difference. Then you both benefit.  

The student loan interest deduction is phased out at a very low income level (for a FBG). My wife and I haven't been able to claim the full deduction for the past two years. Double check your income before deciding, it may very well be the only way to use the deduction is to have her file on her own.

ETA: Phaseout begins at 130K and you can't deduct any at 160K

 

[Mr.Pack]

The student loan interest deduction is phased out at a very low income level (for a FBG). My wife and I haven't been able to claim the full deduction for the past two years. Double check your income before deciding, it may very well be the only way to use the deduction is to have her file on her own.

ETA: Phaseout begins at 130K and you can't deduct any at 160K

Thanks for the info!