On Feb 15, 9:36*pm, "Phil Marti" <prm20...[at]verizon.net> wrote:
- quote -

Thanks Phil. I just read today (in two separate locations) that
children cannot take this $1000 refund. One report indicates that the
child cannot take the refund if he/she is covered by the Kiddie Tax.
Another site indicates that "a child cannot claim the credit unless he
or she provides more than half his own support."

If the child's support must come from earned income, this just about
kills the issue for people in higher income brackets with a 20 year
old (who only works a summer job) in college. I believe the Kiddie
Tax includes those children for whom earned income is less than 50% of
their support....which is a different test than qualifying for a
personal exemption.

If the support can come from gifted assets, we are still in business
for the Hope Credit.

For parents whose income is high enough for the child's personal
exemption to be phased out, having the child take the Hope Credit may
make sense. But if the parent's income allows the full benefit of the
child's exemption, it isn't a no-brainer to let the child take the
credit.

I have a child going into college this fall, so these issues are a bit
new to me. In addition, the recent changes have added some new
twists. So, I appreciate any planning tips you folks have in this
area (or corrections to my thinking).

Best wishes.

--
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<adwagner[at]hotmail.com> wrote:

- quote -

This has been possible under existing law. It does get more interesting
with the enhanced credit and partial refundability.

- quote -

The provision is effective for 2009 and 2010.

<snip
- quote -

This assumes that the parents can withdraw money from the account. That's
going to be a matter of the state law under which the 529 was established.
(I have no idea.) Also, I'm not sure whether you realize that nonqualifed
use of 529 distributions results in taxable income on the student's return,
not the parents'.

But overall, yes, Congress once again has simplified the law to give more
impetuts for buying tax software to play around with the different
possibilities. All segments of the economy should be stimulated.
Unfortunately, for 2009 planning you're stuck with pencil and abacus.

--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >

The changes to the Hope Credit in the stimulus bill seem to offer an
opportunity for the higher income taxpayer to capture the benefits by
allowing the student to take the credit. Consider this scenario:

Parents are over the AGI phase-out for the Hope Credit (and this also
means that qualifications for financial aid are not a concern). Son
is about to enter college in fall 2009.

For 2010 (maybe 2009 as well), parents gift appreciated assets to
son. Son uses the assets for college tuition and other expenses, to
the point where he can claim that he provided over 50% of his
support. Parents do not claim son as a dependent. Son claims self as
dependent, taking the Hope Credit. Son may have a little interest or
dividend income (from assets after gifting) and a summer job, and the
Hope credit eliminates any tax on that income. Hope also eliminates
capital gains if due on gifted assets (would he pay at parents rate
since he is under 21?). Remainder of Hope is taken as a refund. At
worst, he gets the $1000 refund (and parents lose about the same
amount by not having him as a deduction). At best, he also offsets
other income (summer job and interest/dividends) that would be taxable
otherwise.

Son goes to a state University, with tuition around $8000 per year and
total expenses around $20,000. If parents also have a 529 account for
son, they can withdraw the full amount of qualified college costs -
less $4000 used for the Hope Credit. Let's say that is $16,000 for
this example.

Parents gift the son $20,000 in appreciated assets. Parents take
$16,000 out of 529 and keep the funds for themselves. What prevents
parents from doing this?

Bottom line - it looks like you can benefit by having your college
student take the Hope Credit. Even if all his college money is in a
529 account, it seems that shouldn't get in the way....and may allow
you to shelter even more income by donating appreciated assets.

Your thoughts?

--
<< ------------------------------------------------------- > << 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. > << ------------------------------------------------------- >