Client was divorced. His spouse claimed their child as her dependent. He took out a student loan for the daughter. IRS pub says he had to claim the daughter as a dependent to claim the interest. I would think he could because the ex wife claimed teh dependency exemption. Any thoughts?
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Interest to dependent
I think the rules are that the student loan interest (check SSN on Form 1098-E) can only be claimed by the "dependent" or by the person claiming the "dependent." There is some wiggle room for "dependent at the time the loan was established."
That would tend to leave the husband out of the picture.
Of course, if a married filing separately return was filed by either spouse. . .they both are up the creek for claiming any student loan interest.
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TTB page 12-9:
Interest paid by parents or other third parties. Interest is deductible only if the taxpayer has a legal obligation to make interest payments under the terms of the loan. If a person not obligated to pay interest makes the payment, the taxpayer legally obligated to pay is treated as receiving the payment from that person and, in turn, paying the interest. (Reg. §1.221-1)
If a loan is in the name of the student, the student can deduct interest paid by his or her parents. Because the parents are not legally obligated to pay back the loan, the parents cannot deduct the interest. If the student is claimed as a dependent, neither the parents nor the student can deduct the interest.
Qualified education expenses. The cost of attendance at an eligible educational institution, including graduate school, reduced by the adjustments listed below. See Eligible education institution, page 12-4.Always cite your source for support to defend your opinionComment
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