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Ask the taxgirl: Deducting College Expenses

April 3, 2010 · 5 comments

Taxpayer asks:

I am retired and my wife and I support a son in college. We send him $2000/mo for room and board and I spend another $900/month paying off his Sallie Mae student loans. Is any of this deductible? If so, where do I declare it on my tax form. I generally use an online tax service like TaxAct. Thanks in advance for any help you can give me.

Taxgirl says:

This is tricky because there are all sorts of variables…

First, if you support your son and he does not file as otherwise independent, you may be able claim him as a dependent. That means that you can likely take a personal income tax exemption for him on your federal income tax return. For 2009, the personal income tax exemption amount is $3,650. You can claim a personal exemption so long as your adjusted gross income (AGI) remains under the income limits: phase outs begin at $125,100 for taxpayers filing as married filing separately, $166,800 for taxpayers filing as single, $208,500 for taxpayers filing as head of household and $250,200 for taxpayers filing as married, filing jointly.

In order to claim your son as a dependent, he needs to be a qualifying child. Follows is a list of the criteria for a qualifying child:

  • The child must be your son, daughter, stepchild, foster child, brother, sister, half-sibling, step-sibling or a descendant of any of them. Your legally adopted child is considered your child.

  • Your child must be under age 19 at the end of the year and younger than you or a full-time student under age 24 at the end of the year and younger than you. Your permanently and totally disabled child always qualifies, regardless of age.
  • Your child must have lived with you for more than half of the year. Exceptions apply for temporary absences such as illness and travel, children who were born or died during the year, kidnapped children and children of divorced or separated parents.
  • Your child cannot have provided more than half of his or her own support for the year. Support includes basic needs such as room and board.
  • Your child cannot file a joint tax return with any other person for the year.
  • If two taxpayers believe the child qualifies as a personal exemption under the other five tests, special tie-breaker rules apply (I’m not listing those here since they can be complicated – see my prior posts on divorce).

So, the money that you spend to take care of your son while he’s away at college may qualify him as an exemption (good) but you can’t deduct the cost of his living expenses (not so good).

However, you may be able to claim qualifying tuition and certain fees paid on his behalf. Be sure and check out form 8917 (downloads as a pdf) for more information about which expenses qualify for the deduction (I’ll give you a head start and tell you that living expenses do not qualify).

Other deductions, such as medical expenses and tuition deductions may also apply so long as you follow the rules. Be sure and check out my prior post on child-related tax breaks.

Now for the loans. Student loan interest is generally deductible (just the interest, not the principal) on your tax return as an above the line deduction – this means that you don’t have to itemize in order to claim the deduction. You’ll see it at line 33 on your federal form 1040. Income limits apply: the amount of your student loan interest deduction for 2009 begins to phase out if your modified adjusted gross income (MAGI) is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return).

And here’s where it gets tricky: a student who is obligated to make payments on a student loan may qualify for the student loan interest deduction if he or she is not claimed as a dependent on any other person’s return. And oddly enough, the IRS allows the student to take the deduction even if his or her parents made the payments (!) during the year, so long as the payments otherwise qualify and the parents were not obligated to make the payments. However, the rules otherwise require you to be legally obligated to pay the note in order to claim the deduction – so if, as a parent, you’re paying interest for your child out of the kindness of your heart, you cannot take the deduction. Additionally, if you claim your child as a dependent but you are not legally obligated to pay the note, neither you nor your child can take the deduction (the deductibility hinges on the dependent question in that event).

Whew. Like I said, it’s tricky so refer to Pub 970 for details (downloads as a pdf).

Since there are so many choices when it comes to tax breaks and educational expenses, I highly recommend using a tax pro – he or she should be able to run the numbers and advise as to which deductions and credits are most advisable.

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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{ 3 comments… read them below or add one }

1 raelynn zappulla April 3, 2010 at 11:37 am

It wouldn’t apply for me this year but do things such as parking expenses for school or internships count as deductions? I’d like to get ahead of the game and have everything documented just in case. Thanks!

2 Tom April 4, 2010 at 2:28 pm

They ought to make it a point to pay tuition and fees rather than the living expenses, and also books & supplies that qualify for the American Opportunity Tax Credit. That is an amazing credit that will actually pay them back for a chunk of those costs.

3 Doug G April 12, 2010 at 10:01 am

The student should have received a 1098-T from his school. If the parents can claim the student as a dependent, they get to take the American Opportunity Credit (provided other requirements are met), regardless of who actually paid the tuition (unless it was paid through a scholarship or grant). I agree with Tom, this is a huge benefit, up to $2500 credit per student, $1000 of it is refundable. You only need $4000 of education expenses (tuition, books, required equipment including laptops) to qualify for the maximum credit.

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