Can a college student take a tax deduction?

Q. My son is a sophomore in college. We are using money from his UGMA account to pay tuition. We earn too much to take tuition deductions, but he has no earned income. Can our son take the deduction?
— Dad

A. Maybe.

You’re asking about the Tuition and Fees Deduction, an adjustment to income that can reduce your taxable income up to $4,000.

Several qualifications must be passed in order for anyone to take the deduction, said Cynthia Aiken, a certified financial planner with RegentAtlantic in Morristown.

Aiken said the key issue is dependency.

“Whoever claims or is entitled to claim the student as a dependent is entitled to claim the expenses for the credits and deductions,” she said.

So the question becomes whether your son is eligible to be claimed as a dependent on your tax return.

Even if you don’t actually claim him as a dependent but he is eligible to be your dependent, then he will not be entitled to take the tuition deduction on his own return, Aiken said.

If you aren’t certain of his dependency status, Aiken said, then you need to ask several questions:
1. Is he a U.S. citizen, a U.S. national, a U.S. resident or resident of Canada or Mexico?
2. Are you the only one claiming him as a dependent or is he taking a personal exemption for himself?
3. Is he married and filing a joint return?

If the answer to the first three qualifications is yes, then there are more questions, Aiken said:
1. Is your son under 19 or a full-time student under age 24?
2. Does he live with you – exception for full-time student?
3. Do you financially support him, that is, pay more than 50 percent of his support?
4. Are you the only person claiming him as a dependent?

If the answers to the second set of questions are yes, then he qualifies as your dependentand you would be entitled to take the deduction subject to the income limitations, Aiken said.

“Specifically, your modified adjusted gross income (MAGI) must be below $80,000 if filing singly and $160,000 if filing jointly,” Aiken said. “If your income falls below these thresholds, you are eligible to take the deduction as an adjustment to income, thus reducing your taxable income up to $4,000.”

In your case, you stated that your income is too high to take the deduction. So can your son take the deduction?

If your son is not eligible to be claimed as a dependent on your or anyone else’s return and he lives on his own and pays more than 50 percent of his expenses, then he can claim the tuition deduction on his own taxes, Aiken said.

“However, since he has no earned income, his assets and unearned income must be sufficient to provide more than 50 percent of his support,” Aiken said. “So, is he supporting himself? Hopefully, yes.”

Expenses including tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living or family expenses, such as room and board, will qualify as expenses for the deduction, Aiken said.

As always, please consult with a tax professional for the specifics on your situation.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.