Relationship. Naturally, a taxpayer’s own children meet this test, but a child’s descendant or a brother or sister or descendant of a brother or sister can also meet the definition of a qualifying child for the purpose of claiming a dependency exemption (Sec. 152(c)(2)).
Residence. A qualifying child must have the same residence as the taxpayer for more than half of the year; however, a student living away from home while in college is considered to be living in the same residence as the parents (Regs. Sec. 1.152-1).
Age. A qualifying child must be under age 19 or be a full-time student under age 24. For purposes of this test, a student must be enrolled in an educational organization, in what the college or university considers full-time attendance, during part or all of each of any five months in a calendar year (Sec. 152(f)(2)). Meeting this requirement can be difficult if the student does not sign up for a full load of classes or withdraws from some classes. Full-time attendance is defined by most universities as at least 12 semester hours. Both fall and spring semesters usually include at least parts of five months.
Support. The student must not provide over half of his or her own support (Sec. 152(c)(1)(D)). The parents do not necessarily have to provide over half the support. College tuition and fees are included in the cost of support. If the parents pay these costs, the child may meet the support test even if the child pays most of his or her own living expenses. However, if a student pays the cost of tuition and fees or receives a student loan to pay them, that amount is counted as support provided by the student and can cause the child to fail the support test and thereby not qualify as a dependent. If a parent takes out a loan for the student, however, amounts paid for support from the borrowed funds count as support provided by the parent.
Income from scholarships is not included in the calculation of find here support of a taxpayer’s child (Sec. 152(f)(5)) (see Scholarships and Support, JofA, , page 56). The IRS has not given guidance on how distributions from Sec. 529 plans affect the support tests. These distributions can be substantial. If the distribution is counted as support provided by the beneficiary (child), it could prevent the child from qualifying as a dependent. Sec. 529 plans allow the owner (usually a parent or grandparent) to change the beneficiary. This provides some support for the argument that Sec. 529 plan distributions should count as support from the account owner and not count as support provided by the child, but tax practitioners are still waiting for a definitive answer from the IRS.
Joint return. Yet another dependency test requires that the student not be married filing a joint return with his or her spouse unless solely to claim a refund (Sec. 152(c)(1)(E)).
A college student may alternately be the taxpayer’s dependent as a qualifying relative, with tests at Sec. 152(d). For a detailed discussion of the dependency rules, see Dependency Exemption Issues for College Students, The Tax Adviser, , page 546.
The loans must be used to pay educational expenses for the taxpayer, spouse or dependents. The loans can be used for tuition, fees and supplies, as well as room and board and other necessary expenses (Sec. 221). This is an above-the-line deduction, so the taxpayer does not have to itemize to take advantage of it. However, the deduction phases out when modified adjusted gross income (MAGI) is between inflation-adjusted limits: $60,000 to $75,000 for single and head-of-household filers (for 2011 and 2012) and between $120,000 and $150,000 for (between $125,000 and $155,000 for 2012).