In 2014 Chara incurred a loan to pay for qualified higher education expenses for her 20-year-old...

In 2014 Chara incurred a loan to pay for qualified higher education expenses for her 20-year-old grand daughter, who was a dependent. In 2018 her grand daughter graduated from college, moved away to start a new job, and ceased to be a dependent on Chara’s tax return. Chara started making payments on the loan in 2018. Without regard to any modified AGI limitations, is Chara permitted to deduct interest on the loan?

Expert Solution

1. The Eligibility of claiming deduction of interest on the loan as a parent is as below:

If you are the parent or legal guardian of a college student, you can claim the deduction if:

You are legally obligated to pay the interest on a qualified student loan
You paid interest
Your filing status is not married filing separately
You claim your child as a dependent on your tax return.

Also, But if the person's loans are in his/her name and you are not a dependent, you can deduct the interest on your tax return. This applies even if your parents paid them for you.

2. As per the given scenario, Chara is the guardian of her grand daughter and had taken loan for education purpose. But here, while making payment of the loan, her grand daughter was no longer her dependent and has became independent in 2018.

3. Conclusion:

As per the above discussion, since the chara's grand daughter is not dependent to chara in 2018 i.e. while making payment for education loan, hence Chara cannot claim the deduction of student loan interest. And in this case, even if Chara pay the loan interest, her grand daughter can claim deduction of interest paid by her grand parent.

ekkarill92 answered 1 year ago

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