Education credit

[Christian]

A client and his third wife have a 19 year old daughter who they claim as a dependent who lives in their home. As she graduated from high school last year I called to inquire if he did not have tuition expenses which they might be able to obtain a credit for. He did not know and advised that the daughter wanted to file her own return for 2021. This being so she may have claimed the education credit for herself. If so is that legal? I have not reviewed the rules of late but a dependent cannot claim an education credit for expenses paid by her parent right ? The daughter is by a previous marriage so the step father who is my client actually did not know what her expenses were. 

[Terry D EA]

Yes, they can claim the education credits using amounts paid by their parents or any other 3rd party institution. The fact the daughter is a step daughter has no impact. Just remember, there may be no refund as the tax credits are used to reduce tax liability. I always run the education credits for both the parents and student to see which returns the best outcome. The student MUST meet the eligibility requirements below:

Eligible Students

The student must be the taxpayer, spouse, or a dependent claimed by the taxpayer. The student must meet all the following requirements to be eligible.

•The American Opportunity Credit has not already been claimed for the student for any four prior tax years.

•As of the beginning of the tax year, the student had not completed the first four years of postsecondary undergraduate edu-cation, as determined by the educational institution.

•For at least one academic period beginning during the tax year, the student was enrolled at least half time in a program leading to a degree, certificate, or other recognized educational credential.

•The student had no federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year

Expenses paid by parents and others. Students who qualify to claim an education credit can use payments by their parents or third parties to claim education credits. Payments are considered gifts to the student

[Christian]

As it turned out the girl filed her return and claimed herself which meant the couple had to drop her as a dependent. I did advise her mother the credit was available to the daughter.

[Sara EA]

A full-time student under age 24 who does not provide more than one-half of her own support cannot file independently!  She must check the "can be claimed as dependent by another" box and is only eligible for the nonrefundable portion of the education credit.  (I sometimes do this for parents who make too much for the credit and the dependent has a tax liability that can be offset by the nonrefundable credit.)