refundable opportunity education credit.

[grandmabee]

OK having trouble with the refundable part of the credit. so I read all the parts to get it refundable. he's over 18 (23) , full time, BUT so if a parent is alive... he doesn't qualify for refundable. Am I reading this correct?

thanks

[TaxCPANY]

Hi, bcolleen,

No; the instructions for Section III, Line 13, Item 2 of Form 8863 are an *all-inclusive* slate of conditions -- i.e., *all* three Items must apply to your client to deny him/her refundability. (Just, as Devil's Advocate, are you implying that your client is claimed as a dependent on his parent's return, or that that parent contributes over half your client's "support"?) If you're asking whether the mere fact that a parent still lives -- while neither Item 1 nor 3 apply -- then your client's credit should be refundable. Just, scrutinize the definitions of "Earned Income" and "Support," before you accept my advice.

VTY, TaxCPANY

[grandmabee]

he claims himself. he lived out of state except for end of september he moved back home. he did provide over half his support. I keep getting to are either of your parents alive

[Jack from Ohio]

If his parents are eligible to claim him as dependent, which as a full time student they are, he is NOT eligible for any education credits.

It appears that I missed some of the rules... see my post below...

[grandmabee]

I don't believe that is correct. He can't claim is own exemption but if parents don't claim expemption either then he can use educaiton credits

[Jack from Ohio]

Who Can Claim the Credit

Generally, you can claim the American opportunity credit if all three of the following requirements are met.<p class="itemizedlist">

• 
  
  You pay qualified education expenses of higher education.
  
• 
  
  You pay the education expenses for an eligible student.
  
• 
  
  The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
  

<a name="en_US_2010_publink1000204326">Note.

Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.

Expenses paid by dependent. If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Include these expenses when figuring the amount of your American opportunity credit.

If the student paid the tuition himself, and his parents do NOT claim him, then he can take the American Opportunity Credit.

However, unless the student is making a lot of money (not likely for a full time student) the tax benefit to the parents will be much larger. At age 23 and a full time student, he is still eligible to be claimed by his parents. The only exception to that is if he is married.

I stand corrected!!

[jasdlm]

I had this problem last year. I believe the issue is that if you are between 18 and 24 and your earned income is less than 1/2 of your support (which includes the education cost), then you are not eligible for any 'refundable' credit. I think Old Jack was right initially. I assumed the reason for this rule was exactly as he stated in his first post. (I know . . . bad idea to assume.)

[NECPA in NEBRASKA]

I just had a family that the parents don't feel that they should claim, because he only came home for a couple of days for the entire year and doesn't plan to ever move home. His earned income didn't support him, but the loans that he took out, apparently did. Do his loans count as support? His parents only have paid for car insurance for the year.

[Tax Prep by Deb]

I just had a family that the parents don't feel that they should claim, because he only came home for a couple of days for the entire year and doesn't plan to ever move home. His earned income didn't support him, but the loans that he took out, apparently did. Do his loans count as support? His parents only have paid for car insurance for the year.

Who will be responsible for repaying the loan? Him or his parents? If it's him then he provided more than 1/2 of his support. If the loan is in parents name I believe an argument could be made that they provided his support.

Just my two cents worth!

Deb!

[Pacun]

There are other factors that you need to consider. If the child provided more than 50% of his support, which includes loans made for education and "room and board" by the student, then the parents cannot claim him. If he is 23 and the full load of credits is 12 and if he took 11 credits each semester, then he is not a full time student and the parents cannot claim him if he made more than $3,700.

[Jack from Ohio]

I had this problem last year. I believe the issue is that if you are between 18 and 24 and your earned income is less than 1/2 of your support (which includes the education cost), then you are not eligible for any 'refundable' credit. I think Old Jack was right initially. I assumed the reason for this rule was exactly as he stated in his first post. (I know . . . bad idea to assume.)

I know I read in the regulations somewhere, when I first had this situation, that if the student qualified as the parent's dependent, then he/she was NOT eligible for the American Opportunity Credit. I did not dream it, and I printed it out for the couple I was talking to at the time.

Maybe the rules have changed.

Still, back to reality.... Unless the student earns an awful lot of money, the tax benefit to the parents will be much higher. If the student has TAXABLE income of $15,000, then he could benefit fully from the credit. That would mean he would have to have AGI of $24,500 or more.

How many full time students earn that kind of money?? Reality check.....

[mcb39]

The rule of thumb is that the Tuition Credits always follow the dependency no matter who actuallly pays the tuition. And the age is UNDER 24 to qualify as a dependent for the parents without having to consider the $3700 cutoff. ( I would sure like to see someone live on under $3700 in today's economy).

[NECPA in NEBRASKA]

The student is 100% responsible for repaying the loans, so I would say that he will be claiming himself. He won't get as much back as his parents would, but they simply did not provide more than 50% of his support, because he doesn't even come home in the summer and they paid nothing except for his car insurance and a little food on the few times that he came home.

[jasdlm]

Jack from Ohio - I called you Old Jack -- My apologies. I guess I just saw 'Jack' and assumed it was 'Old Jack'.