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Our daughter graduated from college in May, lived at home during the summer, started a graduate program in the fall. As part of the terms of receiving her fellowship (tuition + stipend), she has to establish in-state residency. She is 22.

Looking forward to answering your question, which I'll restate as "Is she a qualifying child for 2009 dependency?" So far we've established that she was a full-time student in at least five calendar months of the year, lived with you more more than half the year, was under 24 at the end of the year, and is your daughter.

Assuming she isn't married, the only question left is whether she provided more than half her own support for the year. If she didn't she's your qualifying child for 2009, and only you can claim her personal exemption. If she did, she's not a dependent since you didn't provide more than half her support. See Publication 501 for a discussion of support and how to calculate it.

I understand that her tuition benefit is not taxable; and that up to age 24 we can claim her as a dependent, assuming she is a full-time student.

Maybe. See above, noting that whether or not "receipts" to her are taxable is irrelevant when figuring support.

Questions:

1. I was under the impression that there was an income limit she cannot exceed for us to claim her as a dependnet. I cannot find this information on the IRS site; maybe I'm confusing that limit with the limit for needing to file a return.


I'm not sure what you may be thinking of, but her income is irrelevant.

2. If we don't claim her, do we jeopardize our ability to be able to deduct tuition payment we made for college?

Yes. See Publication 970.

3. If we do claim her, is there any chance we jeopardize her bid to acquire instate residency (since August, she has paid all her own expenses -- apartment, insurance, has registered car in state, has acquired a drivers' license there, etc.).

On the surface I wouldn't think so, but you've left the realm of Federal tax law. You'd have to look at the applicable state's rules and interpretations.

Phil
Rule Your Retirement Home Fool
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