parent's tax deduction on tuition/books

Paying for College
1

<p>I have a situation where a student is paying fully by themselves. Between loans and savings, the parent paid $0 in 2012. Now it's time file taxes and the fafsa for 2013. The parent makes enough that the EFC will be in $15k range. The child's taxable income is maybe $2000 in earnings. Not sure if scholarship or loans are taxable. </p>

<p>I have several questions: First, can the parent deduct any of the child's expenses if the child does not. Second, is lowering the parent's taxes a better way to increase fafsa chances?</p>

2

<p>Loans aren’t taxable, they aren’t income. Only the amount of scholarships and grants that exceeds the cost of tuition, mandatory fees and required books and supplies(qualified education expenses(QEE)) are taxable. Note that room and board are not QEE.</p>

<p>If the child can be claimed as a dependent on the parent’s return, the child can’t take the American Opportunity Credit(AOC), only the parent can. This credit is the most valuable of the credits, deductions available. The parent can claim the credit based on the expenses the student paid with loans and savings as though the parent made the payments. The amount of scholarships/grants has to be subtracted from the QEE and the remaining expenses can be used to claim the AOC.</p>

<p>The details on taxable scholarships/grants and the AOC are in IRS pub 970:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>Lowering the parent’s taxes via the AOC won’t change the next years EFC. The amount of taxes parents pay decreases the EFC. The AOC decreases the amount of taxes paid, however there is a question on fafsa as to the amount of AOC the parents received and that amount is added back to the taxes paid in the fafsa formula.</p>

3

<p>I read up on this and found this IRS site which help me understand. Up to $2500 tuition, materials and related expenses are eligible for this tax credit.</p>

<p>[American</a> Opportunity Tax Credit: Questions and Answers](<a href=“http://www.irs.gov/uac/American-Opportunity-Tax-Credit:-Questions-and-Answers]American”>http://www.irs.gov/uac/American-Opportunity-Tax-Credit:-Questions-and-Answers)</p>

4

<p>It is $4000 of eligible education expenses that can be used to get the credit. 100% of the first $2,000 and 25% of the next $2000.</p>

<p>Claiming the AOC will not impact the FAFSA EFC.</p>

5

<p>Perhaps your parents will give you the (up to) $2,500 they save via the AOC on the (up to) $4,000 you paid in QEE.</p>

<p>You may also enjoy reading IRS Publication 970 - ‘Tax Benefits for Education’:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>(See pages 9-19).</p>