The federal tax code offers several tax breaks connected to educational expenses that can help you boost your tax refund. These include the American Opportunity Tax Credit, Lifetime Learning Credit and tuition and fees deduction for tuition, as well as the student loan interest deduction. However, the Internal Revenue Service has strict rules outlining who can claim the various tax breaks.
Tuition Tax Credits
You can only claim a tax credit for tuition costs if you claim your child as a dependent. These tax breaks include the American Opportunity Tax Credit and the Lifetime Learning Credit. If you do not claim your child as a dependent, you cannot claim the tax credit. It doesn't matter if you pay the tuition for your child. However, if you don't claim your child as a dependent, your child can claim the tax credit instead.
Tuition and Fees
The tuition and fees deduction requires that the person paying the expenses claim the deduction. For example, if you pay the expenses and claim your child as a dependent, you can claim the deduction. However, assume you claim your child as a dependent, but your child pays for tuition. In that case, you can't claim the deduction because you didn't pay the expenses. in addition, your child can't claim the deduction because he isn't claiming himself as a dependent. Similarly, if you could claim your child but don't, no one can claim the deduction.
Student Loan Interest
The student loan interest deduction does not require that you claim your child as a dependent in the year that you pay the interest. Instead, the deduction goes to the person who is legally obligated to pay the loan and actually pays on the loan. For example, if only your child is on the student loan, you can't claim the interest payments, even if you claim your child as a dependent. However, if you are a co-signer and pay the interest, you can claim the deduction because you are legally obligated to pay the loan.
Qualifying Student Loans
To be a qualifying student loan, at the time you take out the loan, the student has to be yourself, your spouse or your dependent. For example, let's say you co-sign for a student loan in a year that you claim your child as a dependent. When you make payments on the loan, you can deduct the interest regardless of whether your child is still your dependent. However, if the situation is different and you co-sign for a loan when in a year when your child isn't you dependent, you can't claim the interest.
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