Irs Tax Form Publication_some questions
Q.My daughter obtained student loans to attend a state university. She paid the tuition herself and when I filled out the tax forms for the federal income taxes, I did not claim the tuition (1099t) that she paid. Even though we claimed her as a dependent, I felt that since she paid the tuition, I could not claim the deduction on my taxes. She came home in the spring and told my wife and I that her friends parents had taken the deduction in similar circumstances. I called the IRS and explained the situation honestly. The agent did research and said that we could claim her tuition on our return. I had already filed our 2006 taxes so I filed an amended return. The IRS kicked it back saying that we had to include form 8863 for continuing education credits. I looked at what I had sent the IRS and saw that I had written "continuing education credits" instead of "tuition deduction" in my explanation for the ammended form. I called the IRS to discuss why they kicked it back. I also asked them to verify that I could deduct the tuition that my daughter paid on my tax form. This time the agent looked and told me that we COULD NOT take credit for the tuition my daughter paid even though she was my dependent. I looked at publication 970 which I have printed parts of below. It indeed looks like we cannot claim her tuition. The question I have is why Hope Credits and Continuing Education credit expenses can be deductedf, but not the tuition costs. Exerpt from IRS publication 970 Hope Credit: Expenses paid by dependent. If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent expenses when figuring the amount of your Hope credit. Lifetime Learning Credit: Same as the Hope Credit Tuition Expenses paid by Dependant: If your dependent pays qualified education expenses and you can claim an exemption for your dependent on your tax return, no one can take a tuition and fees deduction for those expenses. Can anyone explain what the difference is?
A.Did she pay the tuition out of her own funds, or the loan proceeds? Are you legally liable to pay off the loan? If so those funds could be considered to have been provided by you. On the other hand, if she obtained the loans solely under her own name and is paying not only tuition but room and board for the entire school year, she might not even qualify as your dependent due to providing more than half of her own support. There are three possible benefits: the two credits (Hope, Lifetime) and the deduction (tuition and fees) (the latter has not yet been extended for 2007). Calculate which ever one(s) each of you are eligible for based on your incomes, her dependency status, and the qualified expenses you each paid, and then choose the one that gives you (or her) the maximum tax benefit. This is one situation where software or a paid tax preparer will probably help you, since whatever you claim, at least the correct form, properly filled out, will be filed with your amended return. It would be helpful to the discussion and your dealings with IRS if you were more careful with terminology. There are numerous potential tax benefits from higher education expenses. The Hope and Lifetime Learning CREDITS are a percentage of qualified expenses applied dollar-for-dollar against tax. The tuition and fees DEDUCTION reduces AGI. There is no "continuing education" anything. Anyway, the answer to your question: Because that's the way Congress wrote the law. No, it doesn't make sense, but that's not unusual with laws.
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