If you pay college costs for your son or daughter, you may be able to claim significant tax deductions and credits even if the child does not live with you. To get most of the tax breaks, you must claim the student as a dependent on your tax return. There are different criteria for claiming college students as dependents, based on their enrollment status and age.
There are two types of dependents, a qualifying child and a qualifying relative. As long as your child is a full-time student and does not provide more than half his own support during the year, you can claim him as a qualifying child until he turns 24. After he turns 24, you can claim him as a qualifying relative if you pay more than half his living and school expenses and he does not have more than $3,700 in taxable income.
Residency Requirement Exception
Normally a qualifying child has to live with the parent for most of the year to be claimed as a dependent. But if the child is away from home for educational purposes, the rule does not apply, and you can still claim the tax deductions and credits for the child. If the child is 24 or older, it doesn't matter where he lives as long as he meets the other requirements.
Divorced or Separated Parents
If you are divorced or legally separated and the child spends more time living with the other parent, you can claim the child as a dependent only with the written permission of the other parent. This does not apply if the child over 18 and is not a full-time student, or if the child is at least 24.
Credits and Deductions
If you claim the child as your dependent and pay qualified education costs, you may be able to claim education credits or deductions on your tax return. The American Opportunity Credit offers up to $2,500 in tax credits each year for the first four years of college. The Lifetime Learning Credit offers up to $2,000 in tax credits per year regardless of how many years the student has been in school. The credits are available if you or the student pays for tuition, fees, textbooks and supplies that are required as a condition of enrollment in an accredited college. You also have the option of taking a tuition and fees deduction instead of a credit. If the child is under 24 and a full-time student, you also may be able to claim earned income credit if you meet income and other criteria.
Before claiming a college student as a dependent to claim deductions and credits you should look at the overall financial impact to your child and the other parent. For example, if you are divorced and the other parent qualifies for the earned income credit by claiming the child and you do not, it may be better to let the other parent claim the child. In addition, your child may qualify for more financial aid if he is not claimed as a dependent by his parents.
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