American Opportunity Credit Refundable portion

[JoEllen]

My client is 20 yrs old, has her own apartment, earns $15,000 a year, is a full time student and both her parents are alive.

Is she eligible to receive the refundable portion of the Am Opportunity Credit?

[Roland Slugg]

I'm inferring that your main concern is over her eligibility in regard to her parents' ability to claim her as a dependent on their tax return. If the student can be claimed on another person's tax return, that student can not claim the AOC. (Code §25A(g)(3)) However, if that is the case, then her parents can claim the credit (unless their income is above the eligibility limit). Whether or not she can be claimed as her parents' dependent will probably hinge on the "support" test. If she provided over 50% of her own support, then she can claim herself. If her parents provided over 50% of her support, then they can claim an exemption for her.

There are several other qualification requirements, and they are described in Code §25A. The AOC was added as Sec 25A(i). The easiest place to read them all, however, is in the IRS instructions for F-8863.

[Kram BergGold]

It Depends

Step 1, determine if the student provided more than 50% of her own support. If she did then she claims herself, her parents do not claim her, she gets the AOC and if the $15,000 was more than 50% of the money spent on her support, then she gets the refundable portion as well.
Step 2, if she did not provide over 50% of her support then either the parents claim the AOC or the parents choose not to claim her as a dependent and she gets the non refundable part of the AOC. In this circumstance she can not claim the refundable portion.

[BP.]

TTB 12-4 has a paragraph on this.

And Pub 970, p. 18 has a little chart on this- If you don't claim a dependency exemption, even if eligible, the dependent can claim the (non-refundable) AOC.

[JoEllen]

AOC - Refundable portion

Thanks for the information. Other than medical insurance, the parents did not provide any support.

[dtlee]

Thanks for the information. Other than medical insurance, the parents did not provide any support.

The issue for a Qualifying Child is not whether the parents provided more than half of the support (that is a Qualifying Relative rule), but whether the full-time student under age 24 provided more than half of her own support.

That being said, for the American Opportunity Credit, the student's eligibility is not based on being able to be claimed (that applies to the Tuition and Fees Deduction) but whether or not the student is actually claimed by another individual. Not being claimed makes the makes the individual eligible for at least the nonrefundable portion.

However, since your question is about the refundable portion, I will refer you to this flowchart, since the rules there are based on the "Kiddie Tax" rules rather than the rules for dependency (earnings are likely the determining factor in your situation). If the individual would not meet the qualifications to be potentially subject to the "Kiddie Tax" she can also claim the refundable portion. I reverse-engineered the "Kiddie Tax" rules to create this chart and use it to determine if the student is eligible for the refundable portion once you have determined that a person is eligible for the American Opportunity Credit itself.

Since this is now subject to the Due Diligence requirements, I suggest that you confirm what you read here with information in TheTaxBook or the code itself (Publication 970 is almost unreadable since it "talks" to the parent or the student rather than to the preparer with a client) to ensure that you have met the knowledge requirement.

https://app.box.com/s/rw1rr1gql0xjvlgq4wusvccitqm8gtwb