HELP! Dependency / Ed Credit

[Janitor Bob]

Someone please help...ready to pull my hair out on this:

Client is 23 years old. Full-time student with $10,000 education expenses, income of $6,200.

Client's mother has income of $7,000 and lives with boyfriend who has income of $40,000

Who claims the dependency and thus, the education credit?

I was assuming that mom would claim dependency and the Ed. credit...but when I see mom's income vs. client's income, mom appears to fail the support test.

Boyfriend cannot claim client because client's income is more than $3,800...so not qual. relative.

Does client claim herself? If so, she does not seem to pass the "if under age 24" rules for AOC.

After talking with all involved, it is clear that boyfriend is providing most of the support for both client and client's mom...but since both client and client's mom have AGI over $3,800, boyfriend cannot claim either

So after reviewing as I type......I am thinking that client will claim herself but only be able to claim Lifetime Learning credit...not AOC, since she failed the "under age 24" rules......Comments?

[mcb39]

Is there any reason that the mother cannot be supporting the student with borrowed or gifted (from boyfriend) money? Seems a little underhanded to me but if those are the facts, those are the facts.

[taxtrio]

Who pays the 10,000.00 for college?

Did the student take out students loans that she will have to repay?

If so then she would most likely have provided more than 1/2 of her support as she would count the loans as support provided by herself.

Taxtrio

[Cathy]

The AOC is a 40% refundable credit. In your clients' case, whether the mom claimed the daughter or the daughter claimed herself, the 40% portion of the AOC credit (max is $2,500) is refundable....$625.

Off the top of my head, I believe the daughter might be the qualifying child of the mother for the EIC. No matter where the mother and daughter might live be it in a homeless shelter or the home of a boyfriend, if the daughter (under 24 and a full time student for at least 5 months of the year) lives with the mother for more than 6 months, the EIC credit is available. The mother doesn't need to claim the daughter to get back everything she paid in, and could possibly get the EIC...pull up the EIC assistant under IRS.GOV real quick and run the facts...am in an awful hurry or I would verify it myself for you.

Good luck!

Cathy

[jainen]

>>mom appears to fail the support test<<

What support test?

[Janitor Bob]

Individual must not provide more than 1/2 of own support.

but the more I think about it....the client/student did not provide more than 1/2 of their own support....mom's boyfriend provided over 1/2 of support....so it appears from this that mom COULD claim daughter for AOC and EIC

EXCEPT.....just found out via e-mail....client did NOT live with mom/boyfriend at all during 2012. I had originally though that client/student lived at home except when she was in school...but no...lived away in her own apartment for the entire year....so it looks like she will claim herself...sorry mom.

[Janitor Bob]

but according to AOC rules for students under age 24, it appears that client/student does NOT qualify for the refundable portion.

[Pacun]

but according to AOC rules for students under age 24, it appears that client/student does NOT qualify for the refundable portion.

Read carefully the three conditions and you will see that most students qualify even when they are under 24.

[Janitor Bob]

Refundable Part of Credit

Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2012 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part IV) will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.

1. You were:

   1. Under age 18 at the end of 2012, or

   2. Age 18 at the end of 2012 and your earned income (defined below) was less than one-half of your support (defined below), or

   3. Over age 18 and under age 24 at the end of 2012 and a full-time student (defined below) and your earned income (defined below) was less than one-half of your support (defined below).

2. At least one of your parents was alive at the end of 2012.

3. You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2012.

Based on these three criterea, student/client would NOT get the refundable credit.....all we can do is reduce her tax.

[joanmcq]

If boyfriend does not contribute support, then student may qualify. You've got to do the dependency worksheet. All three of those qualifications have to be present-basically they are not allowing the refundable part for students that could have been claimed by their parents, but are not being claimed.

So if the student provides more than 1/2 of his/her support, neither mom or boyfriend could claim student.

[Janitor Bob]

Boyfriend provides over 1/2 of support for client/student, but boyfriend cannot claim client student because client/student had too much income. Mother cannot claim client/student because client/student did not live with mom at all during the year.

Since client/student attended school for 9 of 12 months, can we classify those months as being a "temporary absence"...and thus, qualify for living with mom? I'm not sure how comfortable I am with this since client/student never actually spent any night at the mom's house.