Question

My child, a college student, received student loans. Are dependent student loans taxable income and included in my income limitation to claim him as a dependent?

Answer

Student loans don’t constitute income. A dependent’s income must be below the $4,050 threshold only if the dependent is a qualifying relative. Since this person is your child, the income requirement might not matter.

However, the student loans are considered support to test if the person qualifies as your dependent. Usually, the cost of education is considered a form of support. If you, as the parent, take out a loan to pay for your child’s education, you have provided the support.

On the other hand, support is considered as coming from the student if both of these are true:

  • Your child takes out the loan.
  • Your child is the sole signer of the loan and is legally responsible for repaying it.

If at least one parent co-signs the loan, the loan is considered support provided by the parent. If a lender requires a parent to sign a loan, the loan proceeds are considered to be support from the parent.

For your child to be a dependent under the qualifying child rule, your child must not provide more than half the child’s own support. So if your child has large student loans in his name alone, your child might be supporting himself too much to be your dependent.

For your child to be a dependent under the qualifying relative rule, you must provide more than half your child’s support. The more support there is from sources outside of you, the more difficult it’ll be for you to meet that threshold.

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