FAFSA & dependency

[joanmcq]

I have new clients (RDPs) where one is going to school and has minimal income ($624 and a scholarship that doesn't cover tuition), and the other is supporting her. The student filed the FAFSA as an independent student, and is well over the age of 24; so that should be the only deciding factor as to independence. Federal law, of course, considers her single. I can't see where I could not take the student as a dependent of the working partner, FAFSA or no FAFSA, because the questions don't seem to cover the situation of someone being the adult dependent of a non-related, non married partner. Therefore, it seems I would have no problems taking the student as the working partner's dependent.

Another wrinkle in the situation is that the two own a house together, but for 2007, the mortgage was only in the student's name, but the working partner paid it. If the one is the dependent of the other, can I take the mortgage interest on the working partner's return? They've refinanced for 2008, but for 2007 there is $11,000 of mortgage interest at stake.

[Roland Slugg]

No and no

Dear joanmcq

Since the loan isn't the "supporting" person's debt, she can not deduct the interest. IMO the most logical way to view the payments is that they are gifts to the "supported" person, who is deemed to have paid the mortgage payments and is entitled to a deduction for the interest portion. A taxpayer simply can not deduct interest he/she pays on someone else's debt ... even if that other person is a dependent.

I believe it is highly doubtful that one of your clients can claim the other as a dependent. The student owns a 50% interest in the house and paid 100% of the mortgage payments. The scholarship received by the student counts as support paid by someone other than the taxpayer. Thus, I don't see how the student can be considered to be supported more than 50% by the other person.

I see you're in California, so I assume your clients are as well. Are you aware that in California RDPs can now file a joint California return (but not federal) if they meet the qualifications?

[joanmcq]

Yep, I know they file jointly for CA purposes. CA is EASY for this one! But the student did not make the mortgage payments, the working partner did from her separate account. No gifting. And the mortgage payments were much more than the scholarship (which was only about $8000 wherease tuition was $24000), not to mention the rest of the tuition paid by the working partner, and food, car, etc. The student, of course, has no taxable income, and cannot use the education credits, or the mortgage deduction. i've got no problem with the property taxes which were paid by the owner (working partner) who was also liable for the debt.

[joanmcq]

bump!

I'm wondering if I can get any other comments on this one. Student did NOT pay the mortgage. Working partner provided all household support. Student did get loans for school and when I get the amounts I will go through the dependency worksheet to determine support. On another board, equitable ownership was mentioned. They may have a chance there because house is community property per state law, and the working partner has a much bigger stake in the property than someone who simply finances a house for his brother who can't get a loan.

Also, if the student is the dependent, can we take the education credits on the working partner's return?

Any comments?