The general rule is that student loan interest paid by parent who co-signed the loan but is not named as borrower cannot deduct the interest if they make payments for this loan. However, my TP is now obligated to pay the loan since son went to prison. Is it now deductible for my TP?
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If the taxpayer....
"has a legal obligation to make interest payments under the terms of the loan...."Originally posted by Gretel View Post
(See below) and Reg. §1.221-1) for clarification.
Excerpt: 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.Always cite your source for support to defend your opinion -
I read TTB and the regulation before I posted but did not find them to answer my question. Yes, the parents now have the legal obligation but if this is addressed in the loan document I do not know. It seems that both conditions need to be met. Maybe I just answered my question. If it was not addressed in the loan document than the bank would not have any recourse against the parents.Comment
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You can also....
reference the attached article (see paragraph 4) and IRS pub 570Originally posted by Gretel View Post
Always cite your source for support to defend your opinionComment
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Thanks, that article makes it clear.Comment
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