Grandparents pay Tuition

[taxtimeagain]

Granparents made a direct payment to a college for their grandchilds tuition. Grandchild is not a dependent of grandparents. Payment was not made to a 529 plan. There is no tax break for grandparents correct? I have told them it is considered a gift and grandchild gets any potential tax benefit and they are sure I am wrong so just checking in case I am missing something.

[Kram BergGold]

Not Exactly

Correct, Grandparents get nothing other than feeling good. Assuming the parents claim the child as a dependent they get the AOC or LLC unless they waive claiming the child as a dependent so that the child can get the benefits.

[JON]

It does not count as a gift is the "maybe" help. I have grandparents who pay medical and tuitions for the gift exclusion. It probably may go away as a benefit for gift taxes if the proposed regs get through the system this year..

[taxtimeagain]

Thank you for the replies.

[Snaggletooth]

What about it Mark?

unless they waive claiming the child as a dependent so that the child can get the benefits.

Allow me please to go to this situation. The question for children is "Can you be claimed as a dependent"??

If the parents "waive" the dependency exemption, how exactly is this done? Is there a form (I doubt it), or maybe an election?

[New York Enrolled Agent]

It does not count as a gift is the "maybe" help. I have grandparents who pay medical and tuitions for the gift exclusion. It probably may go away as a benefit for gift taxes if the proposed regs get through the system this year..

What proposed regulations do you refer to?

Qualified transfers are found in code section 2503. Regulations only interpret the code. You used the words "probably" and "may" and "proposed" all in one sentence. Please give details.

[JON]

Nyea

By all means do not use medical and educational as exempt from gifting.NY

[New York Enrolled Agent]

By all means do not use medical and educational as exempt from gifting.NY

With all due respect, I do not understand this post.

I would still like you to provide the details regarding the proposed regulations you referred to.

[Roland Slugg]

If the parents "waive" the dependency exemption, how exactly is this done? Is there a form (I doubt it), or maybe an election?

Yes, there is a form for this, Snagg. It is form 1040, and the way a parent can elect to not claim a dependent to which he is entitled is to simply NOT list that dependent on line 6c.

The rules regarding the AOC are interesting ... and quite unusual. The child can claim that credit on his own return (but only the nonrefundable portion) as long as he qualifies and no one else claims him/her as a dependent on another return even if eligible to do so. The question thus becomes: "Were you claimed as a dependent on someone else's return," not "Could you be claimed as a dependent on someone else's return?" However, on the student's own return, for purposes of claiming his personal exemption the question is the more restrictive, "Could you be claimed ...?"

[Snaggletooth]

Follow the Logic

Thanks for the response Mr. Slugg. My pea-sized brain is trying to follow the logic.

Example: I have a high-income client whose personal exemptions will phase out because of high-income levels. The education credits and tuition deduction phase out as well.

Son is going to some high-tuition place such as the U of Virginia in Charlottesville. Son cannot claim himself as a dependent, but you are telling me his parents can choose not to claim him even if they are entitled. Wheeee!! this means student can file (even with insufficient income to claim himself) and at least get back the refundable $1000 of AOTC.

Or does it? If I follow your logic, then Mom and Dad do not list him as a dependent, HE cannot even list himself as a dependent, but he can file and get AOTC? and IRS will allow this because they are sophisticated enough to realize parents haven't claimed him. Have I followed this logic correctly?

[New York Enrolled Agent]

this means student can file (even with insufficient income to claim himself) and at least get back the refundable $1000 of AOTC.

Or does it?

?

This procedure only allows the student to reduce his/her income tax liability. The refundable portion of the credit is NOT available in this scenario.

[Roland Slugg]

Have I followed this logic correctly?

Your logic is fine, but your eyesight and/or reading skills must be impaired. Did you see the part in my reply that said "... but only the nonrefundable portion?"

Regarding your attempt to apply logic to the tax law, wassamattayou? Many parts of the tax laws are very logical, especially those that deal with partnerships, carryover basis rules in a wide variety of transactions, and so on. When it comes to political or social "entitlement" issues, however, there is often little or no logic involved.

[Snaggletooth]

Makes it Redundant

This procedure only allows the student to reduce his/her income tax liability. The refundable portion of the credit is NOT available in this scenario.

Thanks for response...if there is no refundable credit, most of the waiving of child dependency will not help the child's return, unless there is tax liability after taking std deduction $6300 and another $4050 for dependency. IOW, if the child has made $10,350 his very status as a dependent is in jeopardy to begin with (in my part of the country).

[New York Enrolled Agent]

Thanks for response...if there is no refundable credit, most of the waiving of child dependency will not help the child's return, unless there is tax liability after taking std deduction $6300 and another $4050 for dependency. IOW, if the child has made $10,350 his very status as a dependent is in jeopardy to begin with (in my part of the country).

If the procedure is followed (parents do not claim the dependency exemption), the child can use the non-refundable AOTC but will NOT be able to claim his/her own $4,050 personal exemption.

[Snaggletooth]

Resurrect this Topic

Topic is already long (and old), but I am confronted with this one more time.

Read from the prior posts (which are confusing). Slugg and NYEA seem to think the dependent can take the refundable portion at least to the extent of liability, but Drake won't seem to let it happen. College Student has $5K of income and a tax liability of $760. 1099-T for $7760. Parents are claiming the student.

If I understand the aforementioned gurus, taxpayer should be able to claim $760 as the refundable portion of American Education Credit.

What am I missing? Is this Drake's fault, or have I misunderstood?