American Opportunity Credit

[Dan]

Question:  What are they talking about in the Form 8863 instructions when it says under American Opportunity Credit that students must have been issued a TIN by the due date of the 2018 return as one of the requirements in order to claim the credit?  

[Margaret CPA in OH]

A TIN is a Taxpayer Identification Number which can be an SSN or ITIN (easy Google search ) So the qualifying student must have one of these.

[Dan]

Question:  Is there anything in the tax rules that says you will only qualify for an education credit if your were not a dependent during 2017?  If this is the case, you could not qualify to take the American Opportunity Credit in 2018 if your parents had you as a dependent on their return in 2017.

[jasdlm]

3 hours ago, Dan said:

Question:  Is there anything in the tax rules that says you will only qualify for an education credit if your were not a dependent during 2017?  If this is the case, you could not qualify to take the American Opportunity Credit in 2018 if your parents had you as a dependent on their return in 2017.

The AOC is only refundable if the student is 25 or older generally.  See the instructions partway down the page at this link:

Also, how many years has the AOC been claimed, because there is a limit of 4 regardless of who claimed.  Maybe I'm not understanding the question.

https://www.irs.gov/instructions/i8863 

[Dan]

Jasdim - so are you saying only the parents can take the AOC if their child is under 25?  As far as I know, the client is in her second year of college and has never taken the AOC.  I am working on who provided the most support, the parent or the child.

[Dan]

I also read in the instructions in Part 1--Refundable American Opportunity Credit is says you don't qualify for a refundable American Opportunity Credit if 1 (a,b, or c), 2, and 3 below apply to you.  But what if under 1.c. your earned income is more than one-half of your support?  

[Terry D EA]

I think you are getting confused as to who can claim the AOC. The student cannot claim any part of the AOC if they meet the conditions below. However, the parents can claim the credit for both non-refundable and the refundable portion. There are other conditions for students over 25 who are part-time that can claim the refundable portion of the AOC. All of this stems on the condition that the credit has not been claimed for four years.

2 hours ago, Dan said:

Jasdim - so are you saying only the parents can take the AOC if their child is under 25?  As far as I know, the client is in her second year of college and has never taken the AOC.  I am working on who provided the most support, the parent or the child.

 Yes, the parents can take the AOC if they are claiming their child as a dependent. Usually, income earned by the student doesn't come into play when they are under 24 and still attending college for dependency purposes. In your situation, you have to determine if the student is better off to claim themselves or the parents. If the student's income is below the filing requirement and there are withholdings then it is a no brainer. Student files a return to get the withholdings back and parents claim the dependency to get the education credits.

Below is a blurb from the IRS instructions for the AOC.

 

If you were under age 24 at the end of 2018 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 don't 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 2018, or
	b.	Age 18 at the end of 2018 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 2018 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 2018.
3.	You're not filing a joint return for 2018.

[Pacun]

If you follow the instructions, a child who provided more than 50% of his/her support qualifies for REFUNDABLE AOC as long as he/she was over 18 years and 0 days by the end of tax year. ALL THREE have to match for the student not to claim the refundable part. I should add, provided he is not filing a joint return.

Keep in mind that AOC follows the "exemption" (if you will). 

 

[Hahn1040]

it is not just providing 50% of support. The greater than 50% of support must be  earned income. .... and having a living parent factors in:

You don't qualify for a refund if items 1 (a, b, or c), 2, and 3 below apply to you.1.You were:a.Under age 18 at the end of 2018, orb.Age 18 at the end of 2018 and your earned in-come (defined below) was less than one-half of your support (defined below), orc.Over age 18 and under age 24 at the end of 2018 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 2018.3.You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2018.Earned income.

 

[Dan]

The student has $1500 (1099-misc-line 7 non-employee compensation).  I would think she needs to file a return because of that fact but whether the parents can claim the student (child) as a dependent is the big question?  So far I have the student if you don't count scholarships, grants, federal subsidized and unsubsidized loans, federal work study, church matching funds with around $9003.  The parents have contributed around $11000.

[Pacun]

1 hour ago, Dan said:

The student has $1500 (1099-misc-line 7 non-employee compensation).  I would think she needs to file a return because of that fact but whether the parents can claim the student (child) as a dependent is the big question?  So far I have the student if you don't count scholarships, grants, federal subsidized and unsubsidized loans, federal work study, church matching funds with around $9003.  The parents have contributed around $11000.

Filing a return is a different story. Yes, ANYONE is required to file a return if you have a 1099-misc filed correctly.  That by itself doesn't change the rules of AOC. 

I start to understand why we have different answers. In my case both parents and students have W-2 and that's it and their livings standards are not of the Pacun tower.  If you want to be more technically, ATX always want you to make the scholarships taxable so the student can take the refundable credit.

[Lion EA]

If the parent(s) could claim the student but do not, the student still cannot claim himself but can claim the nonrefundable AOC. He cannot claim the refundable credit until he qualifies to claim his own exemption.

[Pacun]

1 hour ago, Lion EA said:

If the parent(s) could claim the student but do not, the student still cannot claim himself but can claim the nonrefundable AOC. He cannot claim the refundable credit until he qualifies to claim his own exemption.

I meant to say this and I forgot. Thank you Lion.  DO NOT prepare the two returns and see who gets more benefit. START by determining who can claim the "exemption" for the student. If the rightly owner of the "exemption" doesn't not claim it, NO ONE can claim the "exemption" of the student and REMEMBER that the refundable credit follows the "Exemption". 

I was hoping Lion was going to say if a student with living parents, single 19 years old, who provided more than 50% towards his own support qualified for the refundable portion. My clients (sorry to say... latinos like me), seem to qualify for the refundable credit as long as they provide more than 50% towards their own support.

[Hahn1040]

if they are living with a parent. then at least one parent is alive

SO NO refundable credit  (see above and Pub 970)

[Lion EA]

Yep, multiple items to tick off to qualify to claim own exemption OR to claim AOC if could be claimed by someone else as a dependent OR to claim refundable credit OR.... I sometimes latch onto the ONE item that's the sticking point in one particular situation and don't enumerate all the other points that have to be met. Sometimes, I'm focusing on what I find difficult in the situation and not necessarily the issue the OP wants clarification for.