Education credit question

[Tax Prep by Deb]

I have a client who went to college and lived with her parents during 2013. She is 21, she is considered to be a half-time student but did not take enough credits to be considered full-time. She also earned about 13,000 from a part time job.

Parents are not able to claim her because she was not at anytime during 2013 a full-time student, only a half-time student.

Given this set of circumstances would she qualify for the refundable part of the American Opportunity Credit?

[Jack from Ohio]

I have a client who went to college and lived with her parents during 2013. She is 21, she is considered to be a half-time student but did not take enough credits to be considered full-time. She also earned about 13,000 from a part time job.

Parents are not able to claim her because she was not at anytime during 2013 a full-time student, only a half-time student.

Given this set of circumstances would she qualify for the refundable part of the American Opportunity Credit?

Parents claim her as a dependent and claim American Opportunity Credit. She files and does not claim herself. Requirement for AOC is "at least a half time student." Daughter cannot claim herself and is not eligible for education credits.

[Tax Prep by Deb]

Parents claim her as a dependent and claim American Opportunity Credit. She files and does not claim herself. Requirement for AOC is "at least a half time student." Daughter cannot claim herself and is not eligible for education credits.

Parents cannot claim her because she was not a full-time student during the year. She only carried 10 units per semester and full time is 12. Because she is not a full time student she is not a qualifying child for the parents, but would be a qualifying relative if she had not made $13,000. Also we did some quick calculations and it appears she made have provided just over 1/2 of her own support.

Do these facts change anything?

[David1980]

Given this set of circumstances would she qualify for the refundable part of the American Opportunity Credit?

Possibly. Can't be dependent of parents because she was not a full time student and makes too much money. They do need to have carried at least one-half the normal full-time workload for his or her course of study. So if at least half time they meet that. Only thing that I can think of that would disqualify them from the refundable part of the AOC is if their earned income is less than one-half of their total support. Which could very well be possible, especially if they're paying expensive school costs using student loans, parent funds, other funds, etc. With a part-time job of $13,000 the total support needs to be under $26,000.

[Jack from Ohio]

Tell me how a college student provides more than 50% of her livelihood earning $13,000 in a year?

I am truly interested in the math on this one.

Even if she is not claimed by parents, she is only eligible for the non-refundable portion of the AOC.

Overthinking on this one, big time!!!

[RitaB]

Parents cannot claim her because she was not a full-time student during the year. She only carried 10 units per semester and full time is 12. Because she is not a full time student she is not a qualifying child for the parents, but would be a qualifying relative if she had not made $13,000. Also we did some quick calculations and it appears she made have provided just over 1/2 of her own support.

Do these facts change anything?

I believe she qualifies for the refundable portion if she provided over 1/2 her own support. See bottom of page 4, top of p 5:

http://www.irs.gov/pub/irs-pdf/i8863.pdf

[David1980]

Tell me how a college student provides more than 50% of her livelihood earning $13,000 in a year?

I am truly interested in the math on this one.

Even if she is not claimed by parents, she is only eligible for the non-refundable portion of the AOC.

Overthinking on this one, big time!!!

Regardless of whether the child provided over 50% of their own support they can't be claimed as a dependent on this one. The support test doesn't even matter for dependency because they fail other tests. Support does matter for the refundable AOC.

[RitaB]

Tell me how a college student provides more than 50% of her livelihood earning $13,000 in a year?

It's not hard for me to believe a person can live on $25,999. I see people raising families on that here. Well, that and their $8,000 in refundable credits. OK, bad example.

[RitaB]

Even if she is not claimed by parents, she is only eligible for the non-refundable portion of the AOC.

Overthinking on this one, big time!!!

If the parents COULD claim her and don't, she cannot claim her own exemption, and she is only eligible for the AOC, but not the refundable portion.

But with these facts, parents cannot claim her, and Deb said she paid over 1/2 her own support ( and Deb would know), so she can take both parts.

[Catherine]

Admittedly the "over half of her own support" looks hard on $13K/year but... is she in a state school? Scholarships? Grants? Loans? Using UTMA funds that became hers when she hit 18? She could be making that amount, dealing with college costs, and still providing more than half her support. Whether or not that is _wise_ is another question.

But if the parents are fronting money for school (including 529 plans and the like) it could be that she does not meet the 1/2-support test.

Step #1: detail the support. All of it. Once you have that tied down, you can pursue the rest. Until that is tied down, none of the other questions can be answered accurately.

[Tax Prep by Deb]

Her education expenses are not terribly expensive as it is a community college, but because of her and her parent's income she does not qualify for financial aide and has not received any scholarships or grants. Total between tuition and books is about $1,400. Parents allow her to live at home and they have helped her with some of her tuition. But again when I ran the numbers it appears that the daughter is providing just over 1/2 of her support. It's close but leaning more towards the daughter.

[Jack from Ohio]

It's not hard for me to believe a person can live on $25,999. I see people raising families on that here. Well, that and their $8,000 in refundable credits. OK, bad example.

Including all college costs? $13K before taxes? In CA? SHE has to have provided more than half. I live in a rural Midwest town and it can't be done here on that little income. "$8,000 refundable credit" would not be considered provided by her. A single person with no child is not eligible for that amount anyway.

What part of CA has cost of living that low?

Not convinced....

[RitaB]

Admittedly the "over half of her own support" looks hard on $13K/year but... is she in a state school? Scholarships? Grants? Loans? Using UTMA funds that became hers when she hit 18?

Yep, there may be savings in there, too. I got a 21-year-old that can save birthday, Christmas, and graduation money for years. True story. His sister can save money for 3.5 minutes.

[RitaB]

Including all college costs? $13K before taxes? In CA? SHE has to have provided more than half. I live in a rural Midwest town and it can't be done here on that little income. "$8,000 refundable credit" would not be considered provided by her. A single person with no child is not eligible for that amount anyway.

What part of CA has cost of living that low?

Not convinced....

I musta missed the part where she said the kid lived in CA. But Deb knows about the costs for this student, wherever she lives. The community college costs were 1,400. And you missed my point completely about refundable credits.

[Lion EA]

Does she live in parents' million dollar house? Drive parents' car? Parents pay gasoline, insurance, health insurance, food, and help with tuition, etc.? I was a broke single parent but still spent more than $13,000 on my child. Follow the money.

[Pacun]

Parents cannot claim this child because of her age, income and not being full time student.

[RitaB]

All due respect, Deb is trying to determine what she can do with the information she has, and the facts and circumstances, not our life experiences. Cause she's a smart cookie.

[Tax Prep by Deb]

After listening to all of your comments, I have decided to take a conservative approach. I do believe the girl is providing more than 1/2 of her support, but just barely. This one is a tough call for me because of how close it is, but I would hate to give her the refundable portion only to have IRS challenge it and perhaps she would lose. It really is too close to call. If her figures had come in a little higher I wouldn't have a problem.

Thanks to all who responded.

[Jack from Ohio]

After listening to all of your comments, I have decided to take a conservative approach. I do believe the girl is providing more than 1/2 of her support, but just barely. This one is a tough call for me because of how close it is, but I would hate to give her the refundable portion only to have IRS challenge it and perhaps she would lose. It really is too close to call. If her figures had come in a little higher I wouldn't have a problem.

Thanks to all who responded.

Less than a .1% chance of it even being looked at, much less challenged. This is reality.

[Carolbeck]

I thought that in order to qualify for the "Refundable Portion" of AOC, they had to be age 24 at least?

[Pacun]

I thought that in order to qualify for the "Refundable Portion" of AOC, they had to be age 25 at least?

No. You have to answer three questions and you will take the refundable portion of it.

In this case, I would take it. Just document what she answers to you and fill out a worksheet and you should be OK.

[Carolbeck]

No. You have to answer three questions and you will take the refundable portion of it.

In this case, I would take it. Just document what she answers to you and fill out a worksheet and you should be OK.

According to Page of the 8863 Instructions:

Line 7

If you were under age 24 at the end of 2013 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, you can claim your allowed credit, figured in Part

II, only as a nonrefundable credit to reduce your tax.

You do not qualify for a refundable American opportunity

credit if 1 (a, b, or c), 2, and 3 below apply to you.

1.

You were:

a.

Under age 18 at the end of 2013, or

b.

Age 18 at the end of 2013 and your earned income (defined later) was less than one-half of your support (defined later), or

c.

Over age 18 and under age 24 at the end of 2013 and a full-time student (defined later) and your earned income (defined later) was less than one-half of your support (defined later).

2.

At least one of your parents was alive at the end of 2013.

3.

You are not filing a joint return for 2013.

[RitaB]

None of the choices in #1 apply to her. You don't take the refundable part if 1, 2, and 3 all apply.

"You do not qualify for a refundable American opportunity credit if 1 (a, b, or c), 2, and 3 below apply to you."

[Pacun]

1 doesn't apply to her because she did provide more than 50% of her own support. That the one that allows her to claim it.

[RitaB]

1 doesn't apply to her because she did provide more than 50% of her own support. That the one that allows her to claim it.

Nothing gets by you.