If I pay college tuition for my sister is it tax deductible or can I claim tax credits ?

Question

Or is there any state tax o any federal benefits for me to claim?

Answer 1

Who claims your sister as a dependent? That person can take the deductions or credits for education, even if that person is not you.

If your sister is your dependent, then any of the tax benefits for education are available to you. You may be able to take the Hope Credit of up to $1,650 reduction in taxes, or the Lifetime Learning Credit of up to $2,000 in taxes, or a tax deduction for Tuition and Fees of up to $4,000.

The details are fully and clearly explained in IRS Publication 970 Tax Benefits for Education

http://www.irs.gov/pub/irs-pdf/p970.pdf

If your sister is not your dependent, then you could establish a 529 plan through your state and have the tuition money be deposited into the 529 plan and then paid out of the 529 plan. This will give you some state tax benefits, but no federal benefits.

For federal benefits, you could establish a Coverdell Savings Account and deposit up to $2,000 per year to pay for your sister's education. Contributions are not tax deductible but earnings are tax free when distributed for education.

Both the 529 plans and Coverdell accounts are explained in the publication above.

Answer 2

You may be able to deduct qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent.

Expenses that qualify are tuition and fees required for enrollment or attendance at an accredited college, university, vocational school, or other post–secondary educational institution that is eligible to participate in a student aid program administered by the Department of Education.

Qualified expenses do not include room and board, insurance, transportation, or other similar personal, living, or family expenses. Qualified expenses may include fees for books, supplies, and equipment only if the fees must be paid to the school for the student's enrollment or attendance. In addition, qualified expenses may include student activity fees if the fee must be paid to the school for the student's enrollment or attendance.

You do not have to itemize to take this deduction because it is treated as an adjustment to income. You can claim qualified tuition and fees as either:
(1) an adjustment to income, as directed above; or
(2) a Hope or Lifetime Learning credit.

You cannot deduct higher education expenses on your income tax return if you or anyone else claims a Hope or Lifetime learning credit based on those SAME expenses.

Answer 3

You can only claim those expenses on your tax return is she is your dependant.

I see no tax benefit for you to be paying the tuition, but it is a very, very nice thing for you to do for your sister.

Answer 4

If you can claim her as your dependent, then you can also take the tax benefits for her tuition and fees. If she isn't your dependent, then no, you can't take any tax benefit even if you pay her tuition.