Student or Parent: Who Claims Educational Tax Deductions?

 September 13, 2019
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Educational Tax Deductions

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If you’re a student whose finances are still intertwined with your parents’, filing your taxes may be a bit complicated. But one of the most important determinations to make is who can claim educational tax deductions. If your parents can claim you as a dependent, they get the deductions; if they can’t, you do.

Here’s how to figure out if you qualify as a dependent student and are entitled to college tax deductions and credits, such as the American Opportunity Tax Credit (AOTC), which could ease the financial burden of pursuing higher education. Let’s dive in, with a look at…

What is the dependent student exemption?
Who can claim education tax credits and deductions?
How to Lower your tax bill by claiming the right deductions

What is the dependent student exemption?

Prior to 2018, a personal exemption was a portion of your income the IRS gave you tax-free – $4,050 in 2017 – for yourself and each dependent.

A personal exemption couldn’t be claimed twice on separate returns for the same person. That’s why a parent couldn’t claim a dependent exemption for an adult student who claimed a personal exemption on their own return, and vice versa.

Although the personal and dependent exemptions were eliminated by the Tax Cuts and Jobs Act passed in 2018, determining whether or not you’re a dependent is still important. Whoever claims you on their taxes could stand to benefit from education-related tax deductions and credits.

How to find out whether you’re a dependent

Generally, it comes down to who pays the bills.

If you provide more than half of your own financial support (even if you use student loans), you can claim deductions or tax credits for your own education. But if your parents provide more than half of your support, then they can claim you as a dependent.

Additionally, the IRS has an income cap on dependency if you’re under 24, and under 19 if you’re not a full-time student. In this case, a parent can only claim you as a dependent if you earned less than $4,150 in 2018.

The IRS has a questionnaire that can help you find out whether you’re a dependent. There’s also IRS Publication 501, which lists the conditions that must be met to qualify as a dependent.

Who can claim education tax credits and deductions?

Your dependency status directly affects who gets to claim education tax deductions and credits, including the following:

  • American Opportunity Tax Credit (AOTC)
  • Lifetime Learning Credit (LCC)
  • Tuition and fees deduction
  • Student loan interest deduction

IRS Publication 970 outlines the rules for claiming these deductions and credits. But this overview will help you quickly figure out whether you or your parent should claim college tax deductions.

Lifetime Learning and American Opportunity tax credits

The IRS treats the American Opportunity and Lifetime Learning tax credits similarly regarding whether a parent or dependent gets to claim them.

You cannot claim the American Opportunity Tax Credit “if you’re claimed as a dependent on another person’s tax return, such as your parent’s tax return,” according to the IRS. The same applies to the Lifetime Learning credit.

That means if you are not a dependent, you can claim the American Opportunity Tax Credit or Lifetime Learning tax credit for yourself. But if you are a dependent, you can’t claim either credit, even if you paid for educational expenses like books or tuition out of your own pocket. That’s because the IRS treats those expenses as if they were paid by your parent.

In fact, IRS guidelines state that “qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that dependent, are considered paid by you.”

Student loan interest tax deduction

By claiming the student loan interest tax deduction, a filer can write off interest payments on student loans and revolving credit lines, such as credit cards, used to pay for qualifying education expenses. You can reduce your taxable income by up to $2,500 with this deduction. Here are the rules that determine who can claim a deduction for student loan interest.

  • You can’t be a dependent, or use the tax filing status “married filing separately.” If you’re a dependent, you won’t be able to write off the student loan interest you pay on your own loans (and neither can anyone else). You also can’t claim this deduction if you’re married and file taxes separately from your spouse.
  • You must be legally responsible for the student loan. Your parents can only write off payments they made on student loans they own. And you would not be able to claim a deduction for payments you made to parent PLUS loans your parent took out for your education, since these are in your parent’s name only.
  • You must be the person who paid the interest to claim the deduction. If your parents are the ones covering monthly payments on student loans that are only in your name, you can’t claim a deduction because you didn’t pay the interest. If your parents made payments on your cosigned student loan, however, they could claim a deduction for this debt.
  • You must meet income requirements. You can’t claim the student loan interest deduction if you earn more than the limit specified annually. For 2018, the limit was $80,000 per year in modified adjusted gross income (or $165,000 if you filed taxes jointly with a spouse). You can deduct a reduced amount of interest if you earned $65,000 to $80,000 in 2018 (or between $135,000 and $165,000 for joint filers).

Your student loan servicer must send you tax form 1098-E, which shows the interest you paid for the year, if it meets or exceeds $600. If you’re still wondering if you’re eligible for this benefit, check out our student loan tax deduction calculator. It can help you estimate how much you could save by claiming this deduction.

Not sure if you qualify for the student loan tax deduction? The IRS has another questionnaire you can fill out to see if you’re eligible. You can also learn more about the conditions for deducting student loan interest in our 2019 Student Loan Tax Tips Guide.

Tuition and fees deduction are now expired

The tuition and fees tax deduction was eliminated at the end of 2017. Prior to that, if you were not considered a dependent, you could deduct all qualifying educational expenses you paid for, up to $4,000. The IRS outlined what expenses were tax-deductible, including tuition, fees, books and other school-related expenses. If you were a dependent, the filer got to write off educational expenses they paid for.

Lower your tax bill by claiming the right deductions

Trying to figure out who should claim educational tax deductions can require wading through piles of paperwork, tax jargon and IRS policies.

But getting it right will help you file taxes correctly, avoid headaches and hassles, and potentially even lower your tax bill.

Taylor Medine contributed to this report.