Discussion:Student loan interest...Who can claim ?

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Discussion Forum Index --> Tax Questions --> Student loan interest...Who can claim ?

Truthseeker (talk|edits) said:

13 February 2007
Parent claimed student son as dependent on his return. TP child is full-time student age 20.

Child has 1098-E ISSUED in his NAME. Can the TP(Parent) claim that education loan interest even the document has been issued in the child's name.

Deback (talk|edits) said:

February 13, 2007
Yes. The student loan interest is deducted on the return where the student is claimed as a dependent.

Hadlin (talk|edits) said:

13 February 2007
yes

Dperrone (talk|edits) said:

15 February 2007
Hi-I'm new to this group. I posed this question on another group the other day and the answer to this question is found in Pub 17 pg 128. If the loan is in the student's name, they are legally liable for it, not the parent. It says you can claim the deduction if no one else is claiming an exemption for you on their return. So the answer is NO, the parent cannot claim the student loan interest.

Solomon (talk|edits) said:

15 February 2007
Dperrone - not so. The interest is no different than a student getting a loan in his name. Given the student is still a QC of the parent and the parent claims the dependency, then the parent is entitled to it - whether a tuition credit or the interest adjustment to gross income.

Dperrone (talk|edits) said:

15 February 2007
I used to think that, but please read Pub 17 pag 128 and it clearly states it in the 2nd bullet.

Solomon (talk|edits) said:

15 February 2007
Stand corrected as to the original post however, if a third party made the payment it would shed a different light on it. Reg. 1.221-1.

Yogafan00 (talk|edits) said:

16 February 2007
From the link provided above: "Claimed dependents not eligible—(i) In general. An individual is not entitled to a deduction under section 221 for a taxable year if the individual is a dependent (as defined in section 152) for whom another taxpayer is allowed a deduction under section 151 on a Federal income tax return for the same taxable year (or, in the case of a fiscal year taxpayer, the taxable year beginning in the same calendar year as the individual's taxable year)."

Most students apply for a deferrement on their loans until they graduate. Most parents co-sign student loans.

Solomon, would you mind clarifyng your post? Thanks.

Solomon (talk|edits) said:

17 February 2007
Reg. 1.221-1(b)(4). It would not make it available to the parents, but if Aunt Sally paid the interest, the student still would be entitled to take the deduction - assuming he is not a dependent of another.

I had always assumed the interest was treated like one who gets Hope or Life Time Learning Credits. That is to say, expenses paid by a student or "deemed" paid by the student (e.g. from a parent or third party) were still available to the parent(when dependent of the parent) to claim the credit. Can't seem to find that concept in 1.221-1 regarding the interest, however, applying to the parents.

Kytaxpreparer (talk|edits) said:

17 February 2007
I have always treated the interest as the parents deduction if they still are claiming the child....guess I had been wrong too?? But it does state, that if the parent had a legal obligation to the debt, they can claim it. I guess meaning if they co-signed the student loan, then they can deduct the interest as long as they are claiming the child? Works for me.....

Solomon (talk|edits) said:

17 February 2007
Ky - With joint co-signing, I would do that as well.

Dhtax (talk|edits) said:

18 February 2007
I have the opposite situation: Kid graduates from college, gets a job, and is paying back loans taken out by the parents. (Hope my kid reads this . . .) Can either of them deduct the interest?

David H.

Deback (talk|edits) said:

February 19, 2007
Here is the answer:

Quoted from the IRS: Student Loan Interest Deduction

Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form 1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.

In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for the taxpayer, the taxpayer's spouse, or a person who was the taxpayer's dependent when the taxpayer took out the loan. Since you were not your parents' dependent when they took out the student loan, the interest they paid on the loan does not qualify for deduction. However, the student loan interest payments you made on the student loan you took out on your behalf are eligible for deduction, provided all the other requirements are met. For more information, refer to Publication 970, Tax Benefits for Education, Chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses.

Deback (talk|edits) said:

February 19, 2007
Here's another link:

Topic 456 - Student Loan Interest Deduction

Dhtax (talk|edits) said:

19 February 2007
I re-read the pubs and here's my conclusion:

In my client's case (son repaying loan taken out by parents) it looks like he cannot claim the exemption because he is not legally obligated to repay the loan.

Tax Topic 456: You cannot claim the deduction if:

3. You are not legally obligated to make payments on the loan.

I'm going to suggest that instead of repaying his parent's loan directly he give the money to the parents and let them repay, in which case they can claim the deduction.

David H

Yogafan00 (talk|edits) said:

19 February 2007
Dhtax, your idea might work. It'd be a parent-child arrangement. However, as far as the deduction goes only the parents will be able claim it now that son is on his own. Son should consolidate outstanding student loans so that he can get the interest deduction.

Wwtaxes (talk|edits) said:

10 April 2007
I read somewhere about a month ago, that the loans the parent took can and pays are considered a gift to the child, and hence the child could take the deduction. I can't recall where I read this. I searched these archives, so it wasn't here. Has anyone else heard of this?

Wwtaxes (talk|edits) said:

10 April 2007
I still can't find the original, but I found the following on the Nellie Mae web site:

You can take a student loan interest deduction if someone else makes an interest payment on your behalf, such as an employer or family member.

Here's the situation: I have 2 TP's - parents and child. Both took out student loans while child was a dependent; child is no longer a dependent. Child pays own loans, and pays half toward the loan the parent took out. There is over $7K in interest total: $6K in parent's name, $1300 in child's name. Parent deduction is maxed out at $2500. Is it possible to take $1200 of their unused deduction and use it on the child's return?

Child is not liable for parent's loan, but she does pay half of it. This is why I was looking for the gift reference I asked about earlier. I'm hoping that by either (1) paying for the loan, or (2) the gift issue, the child can max out her loan deduction as well.

Blrgcpa (talk|edits) said:

10 April 2007
Usually the parent loan is paid back starting immediately. The f/t student doesn't start paying the loans until after graduation or if he leaves school.

Who's loan is it?

Wwtaxes (talk|edits) said:

10 April 2007
The parents have a loan in their name, with interest of nearly $6K. The child has 2 loans in her name, with interest of $1300. Child graduated a couple of years ago, and is no longer a dependent, but pays half the payment on the parent's loan, plus her own loans.

Riley2 (talk|edits) said:

10 April 2007
Child cannot claim a deduction for interest that she pays on her parents'loan. However, the parents may claim the deduction for such interest, except that they are already maxed out. The child is limited to the $1,300 that she paid on her own loan.

Wwtaxes (talk|edits) said:

10 April 2007
Ok, here's another reference to the 'gift issue', from Pub 970:

Interest paid by others. If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest.

Thanks Riley for clarifying, but given the other references I saw, I wanted to understand why it sometimes is and sometimes isn't - that being who is liable for the payments.

Illini (talk|edits) said:

10 February 2011
So is it agreed that parents paying for dependent child's loan in child's name, but co-signed the note, can take the interest deduction on the parent's return if parents paid the loan?

JJGTAX (talk|edits) said:

11 February 2011
I always thought only the Primary obligator (one listed first) and not the co-signer could take the deduction, so it seems that no one could take the deduction if the child is being claimed as a dependent.

Illini (talk|edits) said:

11 February 2011
Isn't the co-signer obligated to pay?

Laticiaw (talk|edits) said:

11 February 2011
Only if the primary doesn't pay...

Illini (talk|edits) said:

12 February 2011
so it is a "contingent liability" and not a "liability" until the primary does not pay. What if the co-signer voluntarily pays, is it their liability then?

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