Dependency of our 35 year old daughter living with

[rocketman]

We declared our unemployed 35 year old daughter as a dependent on our 2009 return. She became unemployed in late 2008 and has since lived with us. She had no earned or unearned income in 2009 and 2010. She has attended graduate school the entire tax year of 2010 while living with us and received both subsidized and unsubsidized Stafford Loans to pay her educational expenses for the year. Does this have any effect on her status as a dependent on our 2010 tax return? Also, what effect if any does her dependency and our joint income have on her eligibility for 2011 Stafford Loans?

[mwcpa]

get a copy of IRS publication 501, here is a link www.irs.gov/publications/p501/index.html

She may be a qualifying relative, there are four tests that must be met for a person to be your qualifying relative. The four tests are:

Not a qualifying child test,

From pub 501 ... "Example 3. Your son lives with you but is not your qualifying child because he is 30 years old and does not meet the age test. He may be your qualifying relative if the gross income test and the support test are met. "



Member of household or relationship test,

from pub 501
"Member of Household or Relationship Test : To meet this test, a person must either: Live with you all year as a member of your household, or Be related to you in one of the ways listed under Relatives who do not have to live with you

Gross income test
from pub 501
"To meet this test, a person's gross income for the year must be less than $3,650. Gross income defined. Gross income is all income in the form of money, property, and services that is not exempt from tax. "

Support test. -
from pub 501
"To meet this test, you generally must provide more than half of a person's total support during the calendar year."

There is a lot more to the tests than the very brief excerpt I gave.... please review them all carefully.

I cannot answer your student loan question (related to qualification for such).

[taxref]

Based on the information provided, she would seem to be your dependent under the qualifying relative rules. The fact that she received student loans will not affect that, unless she used some of the loan money for her own support rather than for educational costs. That would be unlikely, but that could affect the support test (you must provide at least half her support).

I am not fully conversant with the student aid rules, but claiming her as a dependent would mean your financal information would have to be reported on the FAFSA form. I am unsure if that information will have an affect on her aid.

[commentator]

Tax exempt scholarship proceeds do not count as support provided by anyone. I'm not so sure the same is true of loan proceeds the student spends on her own education. I believe the support test is threatened in this scenario.

[rocketman]

www.fafsa.ed.gov/help/fftoc02k.htm

I went to the above gov. website which has several questions leading to determination of dependency. All "no" answers determines that the applicant is dependent and parent's information has to be included. If there are one or more "yes" answers, then the applicant is independent and parent's info is not required even if the applicant is declared a dependent on the parent's tax return. So that answers my concern.

Thanks to all for your help.

[rocketman]

Deleted

[973beachbum]

Feb 7, 2011 20:53:52 GMT -5 taxref said:

Based on the information provided, she would seem to be your dependent under the qualifying relative rules. The fact that she received student loans will not affect that, unless she used some of the loan money for her own support rather than for educational costs. That would be unlikely, but that could affect the support test (you must provide at least half her support).

I am not fully conversant with the student aid rules, but claiming her as a dependent would mean your financal information would have to be reported on the FAFSA form. I am unsure if that information will have an affect on her aid.

I am not saying this isn't how it should work but it isn't how it does work. this is how the Gov defines independant status for financial aid, which at the graduate level is only Fed student loans.

Federal regulation determines who is "independent" for Federal student aid programs. Independent students report only their student/spouse income on the FAFSA (Free Application for Federal Student Aid); parental information is not necessary. The seven criteria that establish a student as independent are: (1) age 24, (2) Veteran status, (3) enrollment in a graduate or professional program, (4) married at the time of signing the FAFSA, (5) an orphan or ward of the court, (6) have children who receive more than half of their support from you and/or (7) have legal dependents (other than your children or spouse) for whom over half support is provided.

[commentator]

So a 35 year old is independent for Federal student aid programs.

Now, let's see how this applies to me ... over 24 {check}, veteran {check}, grad or prof program {would be check if I go back to school}, married {check}, orphan {check}, have dependents of one sort or another {not a chance of a check}. OK, 6 out of 7 should be good enough.