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Old 06-14-2012, 03:11 PM
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US Resident, Child planning to study abroad, tax credits and dedections

I have a few questions related to my daughter's college education and tax deductions and credits.

we are US permanent residents since 2009. We are planning to admit her in an engineering college in India in June 2013 and there is an annual fee of 7-8k. I am not sure if the college in India fills 1098T for US tax purposes.

1. what is the max credit ( Hope or lifetime) we can claim?
2. is Hope or lifetime credit valid for students studying abroad ?
3. is "writing off $2,500 of student loan interest" valid for students studying abroad?
4. is "writing off $4,000 in higher education expenses (tuition and fees)" valid for students studying abroad?
4. what are the possible ways I can take up now onwards to maximize credit and deductions?
5) do I get any credit or deduction for lodging/boarding/books/laptop?

Thanks in advance.


Last edited by jagadeshwar : 06-14-2012 at 03:12 PM. Reason: typo


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Old 06-14-2012, 08:18 PM
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“We are planning to admit her in an engineering college in India in June 2013 and there is an annual fee of 7-8k. I am not sure if the college in India fills 1098T for US tax purposes.”---->I guess you need to determine if the college in INDIA is a qualified educational institution under the IRS rules. Start with Page 9 for the definition of qualified educational institution. As long as the college in INDIA is qualified under IRS rules then ,you can deduct your kid’s educational expenses.On the contrary, if the college is not qualified under IRS rules, you can’t deduct anything. Certain educational institutions located outside the US also participate in the U.S. Department of Education's Federal Student Aid programs. No foreign educational institution issues 1098T. Each school and/or insurer in US must file Form 1098T for each student that has paid tuition or received reimbursement from an insurer. This form does not apply, however, to non-credit courses, non-resident alien students, or students whose tuition is covered by an arrangement between the institution and the student's employer. Actually, you do not need a 1098T for ed. expense tax deduction on your return. You can keep ed expenses receipts that you receive from a college in INDIA as evidence. The government wants proof that you are taking legitimate ed. deductions. Receipts showing exactly what you spent your money on is the best proof that you can provide. Receipts are important if the IRS decides to audit your tax return. You'll need to provide them to the IRS to prove that the deductions you claimed really were educational expenses,
http://www.irs.gov/pub/irs-pdf/p970.pdf
“1. what is the max credit ( Hope or lifetime) we can claim?”----> For tax years 2009, 2010, 2011, and 2012, the American Opportunity Tax Credit modifies the Hope Credit; the maximum amount of the credit is increased to $2,500.00; the credit can now be claimed for the first 4 years, not 2, of postsecondary education;the modified adjusted gross income limitations are increased; qualified expenses include course materials. Generally, 40% of the Hope Credit is now refundable up to $1,000. As I assume that the college INDA is qualified ed. inst. Then, for the tax year,2012, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. For LTLC, generally, you can claim the Lifetime Learning Credit if you pay qualified tuition and related expenses of higher education;you pay the tuition and related expenses for your kid as your dependent for whom you claim an exemption on your tax return. The Lifetime Learning Credit also allows you to deduct a portion of the fees you've paid for college tuition and course-required fees and materials, such as a laptop computer as described below. With this credit, you can deduct up to $2,000 in school expenses for as many years as needed.As with the AOC Credit, the Lifetime Learning Credit is generally allowed for qualified tuition and related expenses paid in the tax year for an academic period beginning in that year or in the first 3 months of the following year.
“2. is Hope or lifetime credit valid for students studying abroad ?”--->As described above.
“3. is "writing off $2,500 of student loan interest" valid for students studying abroad?”---> As described above.
“4. is "writing off $4,000 in higher education expenses (tuition and fees)" valid for students studying abroad?”----> As described above. You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for your kid studying in a college in INDIA as your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education. Higher education tax deductions include tuitions and fees but not personal expenses. The deduction doesn't include sports, hobbies and games unless those are a part of your higher education program. Education expenses that are also not tax-deductible include room and board, insurance, medical expenses, transportation, books and supplies. You cannot claim both the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year, but you can claim one credit for one student and the other credit for another student. However, you could claim the American Opportunity Credit for each of your two children, as I assume that two children are studying in a college in INDIA, and also claim the Lifetime Learning Credit for yourself and for your spouse. Or you could claim the American Opportunity Credit for all four of you, if you all qualified. But you can't claim both credits for the same person in the same year.
“4. what are the possible ways I can take up now onwards to maximize credit and deductions?”----> You cannot double dip. I mean if you have claimed educational expenses elsewhere, under business expenses for example, you cannot claim for the deduction again. Additionally, if you are already claiming the AOC Scholarship or Lifetime Learning Credits for lower-income students, you cannot receive a tuition deduction. There is no minimum expense level required before you can qualify for the deduction. Deductions can be made on tuition paid during the same calendar year of the tax season, including for classes that have not yet occurred. Any money you pay for tuition and fees is tax-deductible. The deduction can count for you, your spouse and your dependents as long as the spouses don't file separately and the dependents are not under somebody else's tax claim.
“5) do I get any credit or deduction for lodging/boarding/books/laptop?”----> The tuition and fees deduction permits you to deduct up to $4,000 in qualified higher education expenses per year. Permitted expenses include your tuition and required fees. Room and board, laptop(in the case of laptop, you can’t deduct the expense for laptop UNLESS it is required for ed purposes; I mean if your child is pursuing a computer-specific degree and has one or more courses that require the purchase of a laptop computer, the cost of that laptop can be claimed for education-related tax deductions.) can’t be included as a deduction UNLESS ed expenses are form early W/D of IRA/ Coverdell ed acct. You can deduct qualified expenses you pay for your kid as your dependent that you claim on your income taxes. However, to be eligible, you cannot have a modified adjusted gross income exceeding the annual limits. As of 2011, the annual limit equals $160,000 for joint filers and $80,000 for single filers.



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Old 06-14-2012, 11:37 PM
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Join Date: Jun 2012
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Thanks a ton Wnhough for your details reply.

I checked on https://fafsa.ed.gov/FAFSA/app/schoo...h?locale=en_EN. Seems like no college in India and many countries participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs.

Reason why I choose India is that Indian premier institutions are enrolling the students with very high SAT scores and the tuition fee is less than the US. They charge the fee in USD for the students from outside India.

Here are my follow up questions.

1.when the institution is NOT participating in US Dept. of Education, if we produce the tuition fee payment receipts while filing the tax return, is it not sufficient?

2. If the answer to question 1 is no, there is no deduction, credit, student loan interest. Right?

3. If the answer to question 1 is no, can I utilize 529 (tax-advantaged savings) plan?

4. Is there any way to use pre-tax $$$ to pay the tuition fee in my case?

5. When she is studying in India for 4 years, can I continue to show my daughter as dependent for the tax purposes?

6. If the answer to question 1 is no,could you please recommend any aid/financial assistance programs?

Thanks in advance



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Old 06-15-2012, 12:23 AM
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“1.when the institution is NOT participating in US Dept. of Education, if we produce the tuition fee payment receipts while filing the tax return, is it not sufficient?”--->I do not think so; I mean you can’t deduct your ed expenses on your US return. While there are numerous tax benefits for higher education expenses as discussed previously, the IRS rules don't necessarily provide for the student studying overseas at taxpayers' expense. While your kid may have had an excellent opportunity to study in INDIA, the rules governing these benefits could be subject to taxpayer abuse if a tax credit or deduction were allowed for just any foreign university studies. So, in order to qualify, the tuition and fees have to be paid to an eligible education institution in INDIA. An eligible educational institution is any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the Dept. of Education I guess you neeed to talk to an international taxation representative at the IRS,OK???
“2. If the answer to question 1 is no, there is no deduction, credit, student loan interest. Right?”---> In most cases federal student loans like the Stafford Loan, the Perkins Loan, and the PLUS Loan can be used to study abroad. Thefederal loans can only be used to pay for expenses like tuition, room & board, and other fees directly related to your kid’s educational costs in INDIA. If you pay interest on a student loan, you can deduct the value of that interest from your taxable income. The deduction for interest paid on a student loan is one of several tax benefits for education. It is a special deduction that can be taken on your U.S. federal income tax return as an adjustment to income(Your filing status is any status except married filing separately). The deduction reduces your income subject to tax, and you do not need to itemize in order to take this deduction.
“3. If the answer to question 1 is no, can I utilize 529 (tax-advantaged savings) plan?”---->Yes I guess so; one method of financing study abroad is through a 529 plan. This college saving plan allow for tax-free accumulation of assets and federal tax-free withdrawals for qualified higher education expenses, including approved study abroad programs ( yourkid needs to verify what study abroad programs are approved). Additionally if your child opts for a direct enroll study abroad programs they can withdraw money tax free from a 529 Plan at over 480 universities worldwide. I guess you need to check with FAFSA for a list of eligible foreign schools.
“4. Is there any way to use pre-tax $$$ to pay the tuition fee in my case?”---->I guess it May vary form state to state, I guess;for example, 529 plans in NE and IA offer deductions for contributions made to the accounts. By first putting your tuition payment into a 529 plan, you can essentially get pretax dollars for a portion of the tuition payment. There’s no requirement for how long the money has to stay in the account, so if you haven’t been saving in one of the plans already, you can funnel your tuition payment through one of the plans just to get the tax deduction. So y9u neeed to contact your state 529plan.
“5. When she is studying in India for 4 years, can I continue to show my daughter as dependent for the tax purposes?”---->Sorry no; you cannot claim the child as a qualifying child because the child doesn’t live with you for at least more than half of the year. However, as long as your kid is your qualifying relative(exemption only), then, you would have to show that you paid more than half of the child’s total support AND that the child is either a US citizen or resident . Then, you can claim her as your qualifying relative on your return.
“6. If the answer to question 1 is no,could you please recommend any aid/financial assistance programs?”--->I guess you need to contact NAFSA.
Please visit the Website of NAFSA; NAFSA | About | Financial Aid for Study Abroad: An Undergraduate Student's Resource



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Old 06-15-2012, 02:43 PM
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Thanks Wnhough for your valuable inputs.

Seems like I can't get deductions, credit and I can't use my 529 plan amount if I admit my kid in any university in India as these colleges are not part of the qualified educational institution under the IRS rules.

Here are my questions.
1) If i take Fed/bank loan, can I get the deduction under "33
Student loan interest deduction" on 1040 up to a max of 2500/year for all 4 years of study?

2) If I were to admit her in the US schools with a 15k/year fee and 2k/year study material and my family adjusted gross income and total income is less than 80-90k, the max tax benefit per year is 2500 USD. Right? because either I can claim (credit) OR (Student loan interest deduction+Tuition and fees. Attach Form 8917)



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Old 06-15-2012, 07:59 PM
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1) If i take Fed/bank loan, can I get the deduction under "33 Student loan interest deduction" on 1040 up to a max of 2500/year for all 4 years of study?”---->As said previously, you may claim the deduction if you paid interest on a loan taken out solely to pay the qualified higher education expenses of the kid who was a dependent at that time. Therefore, you, as a parent paying interest on PLUS loans may claim the deduction, provided that income restrictions and other eligibility requirements are met;for example, your MAGI is less than $75,000 ,$150,000 if filing a MFJ, And an it should be an eligible educational institution,i.e., any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the Dept. of Education then, you can reduce your income subject to tax by up to $2,500 (as long as it is taken out solely to pay qualified education expenses,i.e., tuition and fees. Room and board. Books, supplies, and equipment. Other necessary expenses (such as transportation). The student loan interest is a deduction to income, which can reduce your income subject to tax up to $2,500.00. The benefit of this deduction is it can be taken even if you do not itemize deductions on Sch A of 1040. You can deduct student loan interest paid during the remaining period of your student loan as long as it was taken out to pay for qualified education expenses paid or incurred within a reasonable period of time before or after you took out the loan.
“2) If I were to admit her in the US schools with a 15k/year fee and 2k/year study material and my family adjusted gross income and total income is less than 80-90k, the max tax benefit per year is 2500 USD. Right?” ------>It depends. Generally the right to claim student loan interest deduction goes to the person who is legally OBLIGATED ((Generally you, as a co-signer, do have an obligation to pay that is binding. If all the various requirements are met, then you would be able to claim the student loan interest deduction since she is your dependent.) to pay interest on the qualified student loan. So even if you are the person legally obligated to make interest payments and someone makes a payment of interest on your behalf, you are treated as receiving the payment from the other person and paying the interest and can deduct it on your return on 1040.For example, if your kid is legally obligated to make payments on her qualified student loan. As a gift, the parents made the first monthly payment. No one is claiming an exemption for the kid. The kid, not the you, parents, is allowed to deduct the payment of interest on her return. If you claim her as a dependent and she is legally obligated to make payments on her loan, then neither she nor the you may deduct the student loan interest. As a planning tool, if you do not claim your kid as an exemption in the following year, then she may be able to take the student loan interest deduction as long as the student is legally obligated to pay the loan.I guess you need to note that the borrower ,your kid, must have been legally obligated to make payments under the terms of the loan. If you make payments on the student's loan, you cannot claim the student loan interest deduction based on those payments, since you were not legally obligated to make payments on the student's loan. However, the student may claim the deduction based on payments made by you (assuming that the student is not claimable as a dependent on someone else's federal income tax return as mentioned above). One of the most common misunderstandings about the Student Loan Interest Deduction is that a parent can claim it for helping make payments on their child’s loan. In fact, a parent can only take the deduction if they are personally liable for that loan. This means that Stafford, Perkins, and PLUS Graduate loans will not be deductible to a parent since the student is the borrower.
“because either I can claim (credit) OR (Student loan interest deduction+Tuition and fees. Attach Form 8917)”------> You can also claim two types of Tax Deductions: the College Tuition and Fees Deduction and the Student Loan Interest Deduction. If you are not able to claim either the American Opportunity Credit or the Lifetime Learning Credit, you may still be able to deduct qualified education expenses paid during the year for our dependent(s). The tuition and fee deduction can reduce the amount of your income subject to tax by up to $4,000, and is taken as an adjustment to income ;so you can claim this deduction even if you do not itemize deductions on Schedule A of Form 1040. Generally, you can claim the tuition and fees deduction if you pay qualified higher education expenses for yourself, your dependent for whom you claim an exemption on your tax return.
The tuition and fee deduction is claimed using IRS Form 8917. You may not take both an education credit (Lifetime Learning Credit or American Opportunity Credit) and the tuition and fee deduction for the same student for the same tax year. You can take a tax deduction for college tuition and other mandatory school fees. Tuition and Fees deduction is reported directly on Form 1040 line 34 or Form 1040A. Qualifying ed expenses are tuition ;f ees required as a condition for enrollment or attendance; books, student health fees, and other school related costs are generally do not count as qualifying expenses for the tuition deduction. Schools report qualifying expenses to you and to the IRS using Form 1098-T.


Last edited by Wnhough : 06-15-2012 at 08:23 PM.


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