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Posted by Mark Bole on September 27, 2007, 2:38 am
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I've been trying (awkwardly) to ask this question over in
misc.legal.moderated but I think I have finally figured out
what I'm trying to ask, so let me try here.
Specific: if a person is co-borrower on a student loan used
for qualified tuition, can that person be said to have paid
that expense for the purpose of education-related benefits?
For example, parent co-signs with dependent student on the
loan. What about a guarantor on the loan?
General: to whom do the deductible expenses belong, when
paid for with the proceeds of a loan where there are two or
more borrowers? Is it an election the borrowers can make,
or does it depend on who makes what percent of annual
interest and principal payments due? If the latter, does it
depend on who paid interest and who paid principal? What if
some of the monthly loan payments are themselves made with
proceeds from the loan? And lastly, does a different answer
apply if one of the parties to the loan is a guarantor
instead of a co-borrower? If so, at what point does the
status of a guarantor change if in fact he starts making
payments on the loan, either voluntary or as a result of
legal action by the creditor.
For example, if a parent and a child (under 24, full-time
student, lives at home more than half the year) co-sign a
loan, and the proceeds are used to pay for more than half of
the child's support that year, is the child a dependent?
-Mark Bole
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Posted by Benjamin Yazersky CPA on September 28, 2007, 4:00 pm
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> I've been trying (awkwardly) to ask this question over in
> misc.legal.moderated but I think I have finally figured out
> what I'm trying to ask, so let me try here.
>
> Specific: if a person is co-borrower on a student loan used
> for qualified tuition, can that person be said to have paid
> that expense for the purpose of education-related benefits?
> For example, parent co-signs with dependent student on the
> loan. What about a guarantor on the loan?
>
> General: to whom do the deductible expenses belong, when
> paid for with the proceeds of a loan where there are two or
> more borrowers? Is it an election the borrowers can make,
> or does it depend on who makes what percent of annual
> interest and principal payments due? If the latter, does it
> depend on who paid interest and who paid principal? What if
> some of the monthly loan payments are themselves made with
> proceeds from the loan? And lastly, does a different answer
> apply if one of the parties to the loan is a guarantor
> instead of a co-borrower? If so, at what point does the
> status of a guarantor change if in fact he starts making
> payments on the loan, either voluntary or as a result of
> legal action by the creditor.
>
> For example, if a parent and a child (under 24, full-time
> student, lives at home more than half the year) co-sign a
> loan, and the proceeds are used to pay for more than half of
> the child's support that year, is the child a dependent?
In order to get the deduction, it has to be your obligation
& you have to pay the interest. Being a guarantor or
cosignor doesn't make it your obligation, unless the primary
obligor defaults.
___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by nospam on September 28, 2007, 4:00 pm
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> if a parent and a child (under 24, full-time
> student, lives at home more than half the year)
> co-sign a loan, and the proceeds are used to
> pay for more than half of the child's support
> that year, is the child a dependent?
A summary that you suggest probably would be applicable to
you (but which, as a summary, therefore leaves out some
variations of) the basic definition for most federal income
tax related purposes of a parent's "child" who is a
"dependent" is one's biological or adopted child who resides
with the parent for more than half of the relevant year (re.
which absence to attend school is still ordinarily deemed as
living at home) who is younger than 19 at the end of the
relevant year unless s/he is a not permanently disabled
student at the end of the year if under age 24 providing,
too, that the child does not provide more than half his or
her own support during the year.
You still do not say to whom the proceeds of the loan in
question were paid and, insofar as your question concerns
student loan issues including deductibility, see further
comment below.
> if a person . . .
. . . you do not say here whether here use "a person" to
refer in general to a minor or adult who not the a parent
with whom the student in question does not live at least
one-half the year (even if part of that time away from home
at school) and who does not provide at least one half that
student's yearly financial support . . .
> . . . is co-borrower on a student loan used for qualified
> tuition, can that person be said to have paid that expense
> for the purpose of education-related benefits?
This remains a meaningless question because you still do not
say that there have been any repayments (by anyone) of
interest or principal or otherwise associated with the loan
in question.
> General: to whom do the deductible expenses
> belong, when paid for with the proceeds of a
> loan where there are two or more borrowers?
Assuming that the expense is of a sort that would be
deductible to that person if that person incurred such
expense, ordinarily the person who incurred and paid that
expense.
> Is it an election the borrowers can make, or does
> it depend on who makes what percent of annual
> interest and principal payments due?
Here, too, you continue at once to pose your question
confusingly and also to confuse yourself mostly (here) do
not make clear whether you're referring to an "election" not
predicated on a sum the would-be "elect[or]" has paid or has
not paid -- but, again, insofar as you query appears to
refer to interest and related expenses for education related
loans, see further comment below.
> If the latter, does it depend on who paid interest and
> who paid principal?
Ordinarily (as a general matter), the "it" to which you
appear here to refer will depend on who made the payment in
question
(And/but: Yes - I presume that what you think you are also
trying to ask here and elsewhere in your posting, as
apparently in your other related ones, in effect, concerns,
as if you believe this can be reliably glossed as a general
matter, under what if any circumstances a person who is
contractually obliged to repay a loan because that person is
a joint and several co-signor or a guarantor of payment or a
guarantor of collection of the loan in question may deduct
from his or her federal income taxes interest or related
expenses associated with that loan. It is just that, as a
_general_ matter, you probably would be better advised now
that you make at least this element of your concern clearer
than you did in the past to focus on the tax effects of a
loan for educational purposes of one's child.)
> What if some of the monthly loan payments are
> themselves made with proceeds from the loan?
Generally speaking, money is fungible, if the relevant party
(or parties) treat it as that. However, insofar as what now
appears to be your actual concern, you still have not said
to what if any extent it has been the student who made
monthly loan payments from the proceeds to the student of
the loan in question compared with or the parent who made
monthly loan payment from the proceeds to the parent of the
loan in question.
> [D]oes a different answer apply if one of the parties
> to the loan is a guarantor instead of a co-borrower?
> If so, at what point does the status of a guarantor
> change if in fact he starts making payments on the
> loan, either voluntary or as a result of legal action by
> the creditor.
If an individual has guaranteed repayment or the collection
of a loan to another, that person's status as such guarantor
ordinarily does not "change" (from that of a "guarantor")
merely because it has been that person, not the principal
borrower, who makes the agreed payments of
principal/interest.
Relatedly (and essentially by definition), a person who is
identified as a loan's "co-obligor" perhaps especially if
(as you appear to imply is so for the loan have in mind)
"jointly and severally" with the person who, for mutual
convenience, might be thought of (and who also in/by the
note or other loan agreement in question is explicitly
designated as?) the principal borrower, also will not have
such co-obligor's "status [as such] change" if s/he makes
payments towards the satisfaction of the loan.
The "status" or not of one as guarantor of payment or of
collection or as joint and several co-borrower is determined
from what the note or other loan document in question
defines that status to be.
HOWEVER (and as suggested earlier), if, as you now (if more
than a little belatedly) appear to be saying, your actual
concern and query concerns less the variations of
"liability" of differing kinds of "co-signer" and
"co-obligor" and "guarantor" as a general matter or who,
ordinarily as a general matter, "owns" the proceeds of a
loan made to more than one person and, instead (or, at
least, primarily) the tax deductibility or not of a parent's
direct and indirect financial contributions to his or her
child's educational expenses, read IRS publication 970 ("Tax
Benefits for Education") and Tax Topic 456 ("Student Loan
Interest Deduction") and, if need be, the full text of and
the related IRS regulations on which these publications are
based _and_, if it is not too late to do so, discuss with
the lender(s), who presumably will be expert about these
matters, how to structure a loan for a student's education
in a manner that, in light of the respective parties'
income, etc., is most likely to be tax beneficial.
But your mode of posing the questions for which you've opted
in this and related newsgroups suggest that you are not
likely to be aided by (even if arguably correct) answers to
the so far too generalized/open-ended questions you've been
posting.
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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