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I cosigned my son's student loans. Did I provide this support or did he?

Hi,

My son was a full-time college student during 2008 and was under the age of 24 at the end of 2008.

His expenses for 2008 were $24000 for education expenses, $10000 for rent and utilities, $4000 for food, and $3000 for miscellaneous expenses for a total of $41000. He took out $20000 in private student loans which I cosigned for, $3000 in federal student loans which I didn?t cosign for, and earned $2000 from a part-time job for a total of $25000. His college gave him a scholarship of $5000. I paid for the remaining $11000 of his expenses.

I have two questions regarding his status as my dependent:

  1. It says IRS Pub. 501 that a ?scholarship received by a child who is a full-time student is not taken into account in determining whether the child provided more than half of his or her own support?. What does this mean? Surely it must be accounted for in some fashion. Should I subtract it from his education expenses? Would that make his education expenses 000 and his total expenses 000?

  1. Who is considered to be the support provider for the student loans that I cosigned? Is it my son or myself? I?ve seen this question answered both ways on other forums but I can?t find any specific reference on the IRS web site or in any of their publications about the subject of cosigned student loans and the support test.

The answer to question 2 is especially import as it will determine whether I can claim my son as my dependent and therefore whether I can claim an exemption for him for 2008 or not.

Can someone answer these questions and refer me to the appropriate IRS documentation?

Thanks! Wally D

Reply to
Wally D
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"Wally D" wrote

It means that, even if he was on a full ride to the Air Force Academy where food, clothing/uniforms, books, room, and classes were paid for, and you only supported him with a couple of hundred a month in walking around cash, that he's still your dependent if he otherwise qualifies as your dependent.

The student loan, scholorships, etc are not a factor.

Providing that no other person - like a mom or grandparent - does not provide more support than you do, you get to claim your son as your dependent.

The student loan is not a factor. You're looking too long at that issue and have lost sight of the rest of it.

Reply to
Paul Thomas, CPA

Thanks, Paul, for your answers but why do you say that the loan not a factor? Because it?s a loan? Because it?s a student loan? Because I cosigned for the loan? I?m confused because Pub 501 page 17 says under the Tax-exempt income heading: ?In figuring a person?s total support, include tax-exempt income, savings, and borrowed amounts used to support that person.? It then goes on to give Example 2, where a student takes out a student loan of $2500 and uses it to pay her college tuition and says that ?She is personally responsible for the loan?. The conclusion in the example is that ?You (her relative) cannot claim an exemption for her because you provide less than half of her support.?

In the example, the student loan is definitely a factor in figuring the student?s total support. Which brings me back to my original question: Who provides the support in the case of a cosigned loan? My son and I are both personally responsible for the loan. I assume that only one of us can say that he contributed the loan proceeds to my son's total support, though. Can my son and I decide who it is between us or does the IRS have a rule about this?

Thanks again

Reply to
Wally D

Aside for the archives: Air Force Academy cadets currently receive a monthly salary of about $700 a month in addition to tuition, room, and board. They are supposed to pay for uniforms and some other things from this. I see that

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says eachcadet must file federal and state income tax returns.Is there a citation that further addresses the taxes here? ISTM thetax numbers--for both parents and student--ought to be run and theparents should discuss the situation with the Academy student.

Reply to
honda.lioness

Your son is your dependent unless he provided over 1/2 his own support.

The loan proceeds are his money, not yours. The amounts expended on his costs are support he provided for himself.

The scholarship is not support provided by either you or your son. The portion of tuition paid by the scholorship are not costs that anyone paid for computing support. Since the scholarship was $5,000 his total expenses are reduced by $5,000. If he paid over 1/2 of what's left, he cannot be claimed as your dependent.

You state that you paid $11,000 out of $36,000 total costs. He paid the rest. He paid over 50% of his own support.

Reply to
Bill Brown

[...]
[...]

I asked a similar question "who owns loan proceeds when co-borrowers" back on Sep 26 2007, if you want to read it in the archives. I agree that the answer you get often comes out in an unclear or contradictory fashion, depending on who you ask (try, for example, to decipher the answer in that thread from snipped-for-privacy@isp.com).

Back then, Bill Brown provided some good advice, although it still doesn't seem to answer the original question:

My hunch is that if you and your son file returns that are consistent with respect to each other on the support test for qualifying child, you will not have any problems.

-Mark Bole

Reply to
Mark Bole

As Paul says, the scholarships don't count, but according to the Tax Court the student loans do. See PHILIP J. McCAULEY, 56 TC 48,

04/12/1971.

Mr. McCauley, the parent of a Cornell student, didn't cosign her student loans, so the case is not totally on point. However, RIA Checkpoint (US Tax Reports, Para. 1524.05) suggests that if you want to claim the student as a dependent, have the parent, not the student, take out the loan.

Katie in San Diego

Reply to
Katie

the answer I found on turbotax help site says cosigned loan is not considered student income self-support because parent holds equal liability

https://ttlc.>

Reply to
seeking

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