Refundable tuition credits

[LCP]

I just realized that the decision to claim a student (and get their tuition credits) vs allowing the student to claim themselves may be more complicated this year.

Now that some of the credit is refundable, the student will be able to utilize more than in the past.

Has anyone thought this all the way thru yet?

[erchess]

My Understanding

My understanding is that the return for someone who is eligible to be claimed as a dependent is not changed by the election of the other party not to claim them.

My further understanding is that a tax benefit belongs to the party who paid the relevant expense.

On the other hand I don't know everything........

[LCP]

Page 12-3 of TheTaxBook.... "the refundable portion is not available to the student".

IOW....... nevermind.

[Lion]

Erchess

Erchess, as you get similar situations in your practice, please look up the details.

There are a few oddities with student dependents. For instance, if someone CAN be claimed as a dependent by another and is NOT, the dependent can NOT claim himself -- as you stated. However, the student CAN now claim certain educational benefits, but maybe not others.

And, in some situations, the amounts paid may be attributed as a gift to the student who then pays them. Or, as gifts to a parent who then can deduct them if the student is his dependent.

With divorced parents, if mom is the custodial parent and dad pays all the educational expenses, then MOM gets to deduct the expenses that dad paid. (Considered a gift to the student by dad and then claimed on the return where the student is a dependent -- Mom's!)

Of course, sometimes no one gets any tax benefit. Child has student loans and pays interest, but child is a dependent on parents' return; child can't deduct as a dependent, but parents can't deduct as not paid by them nor their liability.

No logic or even symmetry. And, I didn't attempt to describe the above situations thoroughly. Don't poke holes. They're just meant to remind us of the lack of logic in tax law, and that we can't apply what we know about one situation to a similar but not identical situation. I usually end up looking each case up each time!

[erchess]

TY Lion

for the heads up. I do have an extended family with the issue of education credits to say nothing of what might come up in the case of a new client. I will remember to peruse thee relevant material in TTB before I tackle these.

Come to think of it the situation I know I am going to have is somewhat unusual because the child in question is clearly not a dependent (over 25 and makes almost 30K) but he is going to school at Mom and Dad's expense. Anyway I have some reading to do and thank you for the reminder.

[Lion]

Gifts

You might have a gift tax situation if Mom and Dad are giving money to grown kid. However, if they pay the educational institution directly, that payment does not count toward their $13,000 each gift without triggering a return.