Help on AOC_Hope Credit

[rfk]

Given that I am sick and trying to make sense of the AOC for a client, looking for clarification.

For taking the most beneficial and qualifying Education Credit:

> Taxpayer is 21 at end of Dec. 2011

> My presumption at this point is that he is in his first 4 years full-time, and works full-time

> He is filing as a single a taxpayer; lives with his older brother; provides his own support

> Parents are both alive

> Paid close to $4,000 for school related tuition and books

What's the best credit here is to be used; I am a little confused on whether the AOC can be taken over the other 2 selections?

Thanks for your help in advance.

rfk

[Super Mom]

My tax software has an education expense form in which you can click on the 3 choices to see which one has the best impact. The biggest thing that comes to mind on the AOC is that they have to be at least half time in a degree program and not taken AOC or hope for more than 4 years total. If he qualifies for the AOC he can take expenses like books, computer required, etc...

[KBTS]

Have you searched recent discussions on the board. Not being smart, but this same issue has been discussed several times in the last week or so.

Having said that....based on what you said, it appears he would qualify for the AOC. If his earned income was greater than half his support, then he could get the refundable portion. You will have to run the numbers to see which education credit works out the best for him.

[Super Mom]

Oh, and he can't take the refundable portion. And the credit must be reduced by scholarships or assisance. TTB 12-3-12-4 will tell you all about it!

[rfk]

Kbts

Thanks, KBTS.

My main concern is the parents being alive info in the TTB write in. I think he qualifies on all other accounts, as he is in his first 4 years and provides more than half of his own support, but not sure about the parents being alive.

Sometimes the threads do not address something specific to the situation, so assumptions are made. There is always one or two pieces of a situation which can throw you for a loop, so you go to questioning, as in this case.

Thanks, again.

rfk

[KBTS]

Thanks, KBTS.

My main concern is the parents being alive info in the TTB write in. I think he qualifies on all other accounts, as he is in his first 4 years and provides more than half of his own support, but not sure about the parents being alive.

Sometimes the threads do not address something specific to the situation, so assumptions are made. There is always one or two pieces of a situation which can throw you for a loop, so you go to questioning, as in this case.

Thanks, again.

rfk

Search for the recent discussion on this board. Someone had an excellent explanation of this confusing part of the rules. But I believe the bottom line was that if student must provide over half of own support with earned income if both parents are alive to qualify for refundable AOC. The rule is written very awkwardly and is hard to follow. Look for that discussion and it will help.

[Super Mom]

I stand corrected about the 24! Sorry, always check the book!

[rfk]

Thanks for the followup

Thanks as always.

rfk

[Gary2]

If his earned income is more than half his support, then he qualifies, regardless of whether or not his parents are alive.

If neither parent is alive, then he qualifies, regardless of his earned income - as long as he can't be claimed as a dependent by anyone else.

[dtlee]

If his earned income is more than half his support, then he qualifies, regardless of whether or not his parents are alive.

If neither parent is alive, then he qualifies, regardless of his earned income - as long as he can't be claimed as a dependent by anyone else.

Gary,

I thought the rule was that the student is eligible for the credits if the student is not claimed by anyone else.

The rule is that the student is eligible for the tuition and fees deduction if the student cannot be claimed by anyone else.

Do I have this backwards?

[Gary2]

Gary,

I thought the rule was that the student is eligible for the credits if the student is not claimed by anyone else.

This was specifically about the refundable part of the credit, and the special rules for taxpayers who are subject to the kiddie tax. It wasn't about the credit in general.

[dtlee]

This was specifically about the refundable part of the credit, and the special rules for taxpayers who are subject to the kiddie tax. It wasn't about the credit in general.

Thanks.

I do not think being a dependent automatically excludes a person from the refundable portion of the credit which is how I read what you say here:

If neither parent is alive, then he qualifies, regardless of his earned income - as long as he can't be claimed as a dependent by anyone else.

While not common, a 21-year-old could be a part-time student and thus neither be subject to the kiddie tax nor excluded from the refundable portion of the credit. If income is low enough, he could be a Qualifying Relative. If enrolled at least half time, he would be able to claim the credit (both parts).

What am I missing?

Thanks.

[Jesse]

Thanks.

I do not think being a dependent automatically excludes a person from the refundable portion of the credit which is how I read what you say here:
While not common, a 21-year-old could be a part-time student and thus neither be subject to the kiddie tax nor excluded from the refundable portion of the credit. If income is low enough, he could be a Qualifying Relative. If enrolled at least half time, he would be able to claim the credit (both parts).

What am I missing?

Thanks.

If I'm understanding correctly, one of the requirements for the refundable portion of the AOC is earned income must be greater than 1/2 of the students support. If in fact the student is providing more than 1/2 of their own support they could not be a dependent of another.

[dtlee]

If I'm understanding correctly, one of the requirements for the refundable portion of the AOC is earned income must be greater than 1/2 of the students support. If in fact the student is providing more than 1/2 of their own support they could not be a dependent of another.

That is not how I read this.

The rules are as follows:

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 2011, or
      
   2. Age 18 at the end of 2011 and your earned income (defined below) was less than one-half of your support (defined below), or
      
   3. A full-time student over age 18 and under age 24 at the end of 2011 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 2011.
   
3. You are filing a return as single, head of household, qualifying widow(er), or married filing separately for 2011.

You must meet three tests (i.e., 1, 2, and 3 above) to be ineligible for the refundable portion and if you fail any one of them, you are eligible for the refundable portion. You don't have to focus on the ones you pass if you have already failed one. My post was about test 1 which has three different rules based on the student's age. For someone age 21, rule 1c applies.

As I read 1c a person must be a full-time student over age 18 and under age 24 at the end of 2011 with earned income that was less than one-half of your support. If the student meets this criteria, the student is ineligible to receive the refundable portion. If the student does not meet this criteria, the student is eligible to receive the refundable portion.

In other words, the student must meet all of these criteria to be ineligible for the refundable credit. Not just a full-time student alone. Not just over 18 alone. Not under 24 alone. Not earning at least half of support alone. All of those together.

Looking at it another way, the student is in this age range who fails any one of these criteria will be eligible for the refundable portion. Taking 1c apart, you get that for a student over the age of 18, if that student fails any of these, the student may get the refundable portion of the credit:

• a full time student
• over age 18 at the end of 2011
• under age 24 at the end of 2011
• earned income less than one-half of support

For the scenario I was asking about, it was a student with low income, age 21, not full-time, but at least half-time. For this criteria, I would evaluate it as follows:

• a full time student: FAIL
• over age 18 at the end of 2011: PASS
• under age 24 at the end of 2011: PASS
• earned income less than one-half of support: PASS

As I mentioned earlier, you need to pass all four to be ineligible for the refundable portion. Failing any of these makes you eligible. Even if the earned income is zero, it would not matter once the student fails being a full-time student. A non full-time student this age having zero income who lives with his parents would likely be a Qualifying Relative.

Thus, my point was that I think a student who is over 18 and at least half-time but who is not full-time can have zero income (or less than the exemption amount), be a Qualifying Relatvive dependent, and still be eligible for the refundable portion of the American Opportunity Credit (as long as this student is not actually being claimed by another person as a dependent). A parent of such a student with high enough income to lose eligibility for the credit and especially one who loses the exemption due to AMT, would lose nothing by choosing not to claim the dependent and allowing the dependent to receive the refundable portion.

The key is that the student is not full-time but at least half-time. A full-time student in this situation could not get the refundable credit because the student would pass all four tests (and also be a Qualifying Child as opposed to a Qualifying Relative).

I have not found anything that states that being able to be claimed as a dependent alone makes a person ineligible for the refundable portion of the credit (nor the nonrefundable portion).

Please show me where I am misreading this.

Thanks.

[Jesse]

I see what you are saying, but I am not convinced that a more than half time but not full time will necessarily fail the test and make the student eligible for the refundable portion of the credit, that is my opinion only and you could be correct.

I was looking at the support issue, in that if earned income was greater than 1/2 of the students support, the student can not be claimed as a dependent of another so dependency would not be an issue.

If the students earned income needs to be greater than 1/2 of support but if the student does not spend the earned income on their support, the student could possibly still be a qualifying relative or child of another. Not sure about that either, but I didn't research.