My husband & I pay 37.5% of his eldest daughters college expenses. We do not claim her as a dependent. Can the college dollars paid by us qualify for a write-off? Everywhere I look it says only a "dependent". We are still paying child support (36% of his net). So, technically she is a dependent on our income, plus his flesh and blood. She is still claimed on her mothers return.
Denise
Denise, as a general rule you are only allowed to take a direct tax benefit for education for yourself, your spouse, and your dependents.
There is nothing stopping you from making contributions to an account like a 529 plan or a Coverdell ESA (if you are otherwise-eligible). I think, though, you are looking at more direct tax breaks. These would fall into two categories: the tuition and fee adjustment, and the Hope or Lifetime Learning credits:
1. Tuition and fee adjustment. This is only allowed for payments made for a "qualifying student." A "qualifying student" is defined as the taxpayer, the spouse of the taxpayer, or the dependent of the taxpayer. Since the student is neither of your dependents, this benefit cannot be claimed.
2. Hope credit. This one involves a catch-22. You can transfer the Hope credit to the student if you yourself directly pay the college. However, the student can only claim the Hope credit if she is a freshman or sophomore, and if she is not claimed as a dependent. Chances are, you're out of luck here.
3. Lifetime Learning credit. Similar rules as the Hope credit on the dependency angle.
So what can you do? Certainly, you've got to look at bit inventively at some options.
You might consider a "multiple support agreement" with the ex-wife. Normally, these involve swapping dependency claims between the two households each year. Then, in odd years the daughter could become your dependent, and some of these tax advantages could be available to you.
Another is to contribute to your state's 529 plan, and have the tuition taken out from there. You may be able to get a state income tax deduction for it, but this is likely to be minor. Also, the costs of the 529 plan may outweigh the benefits. Nonetheless, I would suggest you check out www.savingforcollege.com and see what your state has to offer.
Another option is to reconstitute the payment. This may involve changing the provisions of your husband's divorce settlement, so that may be prohibitive.
Some examples of how to do this might include:
- paying for charitable contributions his ex-wife would have made anyway, and crediting this toward his tuition payments. Then, you and he can take a deduction on your taxes.
- purchasing a residence for his daughter and taking a second home deduction for mortgage interest and property taxes
- gifting money to his ex-wife, having her make 401(k) elective deferrals, and have her gift him some or all of her tax savings
As you can see, you would have to be somewhat inventive, and it may be prohibitive to try. But you might be able to think outside the box and shake some tax savings out of the tree.
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