AOC - Grad School??

[Kaz]

Please help me for clarification.

In a forum last year, IRS announced that AOC can be claimed by a master's degree candidate if requirements are met. They also said they made an adjustment for the 1098T instruction to clarify the part, BUT I cannot find it anywhere.

Could you refer me to the source document or explanation? The IRS forum was formal, but it was PowerPoint presentation. I wonder if I am missing something...

Thank you.

[Jesse]

The only circumstance I can think of is if the student is in the Fourth/Senior year of college in the Spring and the Masters semester begins in the Fall. Then the qualifying expenses for both of these semesters could be claimed for the AOC.

[FEDUKE404]

Count the years!

This scenario has recently been discussed on these boards.

IIRC, the comments were generally of the nature that the governing rule relates to the "no more than four calendar years" issue.

While the graduate school expenses are likely "qualifying" you can run up against the wall with the total number of years restrictions on certain credits.

Another thing that can muck up the works is that a current year senior in college may well have paid the Spring 2012 expenses prior to the end of 2011. (Just put that Form 1098-T into the shredder.) Those expenses would be a 2011 tax consideration, but new/upcoming grad school expenses would be a 2012 consideration.

FE

[Gary2]

There are two different four-year rules. The one against taking the credit on more than four tax years is easy to understand and apply (assuming you have all the tax return history).

The one against taking the credit if the student has had more than four years of post-secondary education is trickier. Among other things, it applies at the start of the tax year, not the more common 12/31 that we use for marital status and age. Because of this, a student completing senior year in the spring (at least half time), graduating in May, is still a qualifying student for the entire year, and expenses paid for a fall semester of graduate school, even if they're the only qualifying expenses, can qualify for the AOC. See example 2 under "Who is a qualifying student" in Pub 970.

[Kaz]

Thank you so much for all your input.

I neglected to see the other first 4 yr post secondary rule. However, the IRS tax forum still confuses me a little. So could you please take a look? The speaker talks about AOC toward the end of the video clip.

http://www.irstaxforumsonline.com/index.php?q=node/853

I would appreciate your opinions on the video clip.

Thank you.


IRS Nationwide Tax Forums Online. 2011. Internal Revenue Service. 19 Jan. 2012.
<http://www.irstaxforumsonline.com/index.php?q=node/853>

[Kaz]

So it still means we have to apply the 2 different 4 year rules when we consider AOC? Or the IRS forum implies only the 4 year rule of taking the credits and ignores the first 4 year rule of post-secondary education (undergrad fresh man to senior yr)?

I don't understand why she didn't even bother to mention the rare consequence for master's degree candidates. She sounded like as long as a taxpayer has not taken Hope and AOC 4 times in total, even grad school students can take the credit for their expenses in an ordinary manner.

Please advise.

[Gary2]

Thank you so much for all your input.

I neglected to see the other first 4 yr post secondary rule. However, the IRS tax forum still confuses me a little. So could you please take a look? The speaker talks about AOC toward the end of the video clip.

http://www.irstaxforumsonline.com/index.php?q=node/853

I would appreciate your opinions on the video clip.

I think the video clip illustrates why I, and many of the others I spoke to at the Atlanta IRS forums, thought the IRS tax law update session was a horrible seminar. The AOC issue that you're pointing out is devoid of concrete examples. Keep listening to the 1099-K spiel, and it sounds like the speaker is just reading out of some publication.

[LKD]

second Bachelor's degree

What about a client that has a previous bachelor's degree from the 90's and went back for a second bachelor's degree last year? She has never taken an educational credit previously, and is technically a freshman in the program.

[Jesse]

What about a client that has a previous bachelor's degree from the 90's and went back for a second bachelor's degree last year? She has never taken an educational credit previously, and is technically a freshman in the program.

If the student has had four years of post-secondary education before 01/01/XX - beginning of the tax year, no AOC, even if that previous four years went back to the 90's.

[MilTaxEA]

From IRC 25.B.2.C which is referring to the Hope Credit but the AOC (defined later in the same section) uses this same paragraph with 4 years substituted in for 2 years:

(C) Credit allowed only for first 2 years of postsecondary education
The Hope Scholarship Credit under subsection (a)(1) shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 2 years of postsecondary education at an eligible educational institution.

In other words, if they have completed the first four years of school before this year (even for a second bachelor's degree) they cannot take the AOC.

[LCP]

Assume that a new grad student qualifies for one last year of AOC.

1098T shows $2,000 tuition and $20,000 of scholarship/grant.

I realize that at least $18k is taxable (but not subject to SE). Could the student not use the tuition to reduce his income so that he can use it for the AOC instead?