Dependent Claiming American Opportunity Tax Credit

[bbrownatl]

What am I missing here? Parents income exceeds AGI limit and thus gets no benefit from the American Opportunity Tax Credit. I understand the strategy of not claiming the child and having the child claim it to get the 40% refundable amount. However, if a full time student (over age 18, less than 24) and who perhaps makes $2K with a summer job, I really see no way that of justifying that the child provides greater than 50% of his/her support. Not saying it is impossible, just rare. Agreed or other insight? Thanks in advance for your input.

Brian

[spanel]

What am I missing here? Parents income exceeds AGI limit and thus gets no benefit from the American Opportunity Tax Credit. I understand the strategy of not claiming the child and having the child claim it to get the 40% refundable amount. However, if a full time student (over age 18, less than 24) and who perhaps makes $2K with a summer job, I really see no way that of justifying that the child provides greater than 50% of his/her support. Not saying it is impossible, just rare. Agreed or other insight? Thanks in advance for your input.

Brian

Agreed. The 18-23 yr old does not quality for the refundable part of the AOC because of support.

Chris

[Rapid Robert]

However, if a full time student (over age 18, less than 24) and who perhaps makes $2K with a summer job, I really see no way that of justifying that the child provides greater than 50% of his/her support.

It's easily conceivable that the student has taken out loans to pay for tuition (and maybe room and board too) that equal more than 50% of their own support. The income of the student is not the determining factor, only support (which is independent of income).

However for the refundable portion there is a separate earned income requirement for the 18-23 year old, in addition to support.

[bbrownatl]

Robert & Chris - Thanks for the input. Much appreciated.

[Lion]

I think the strategy you're thinking of is for the parents who are high income and will not qualify for AOC to not claim their college student; however, in your scenario, the college student will NOT claim himself. He files as someone who CAN be claimed by another, and qualifies for the nonrefundable part of the AOC. He does NOT qualify for the refundable AOC.

That's in contrast to a student who DOES provide more than half his own support and meets the other requirements to claim his own dependency, does NOT qualify as a dependent for his parents, and then qualifies for both the nonrefundable and refundable AOC. In that scenario, his parents have no choice; they can NOT claim him.

The question on the return is not about DOES someone claim you; it's CAN someone claim you.

[bbrownatl]

Much thanks. Soto confirm, in the case I'm referring. Are you saying the parents do or don't claim him? I'm thinking they claim him and get the $500 for the Other Dependent Credit. The college child then does not claim himself and he qualifies for the nonrefundable portion $1,500 ($2,500 x 60%) which is really only useful if the child owes federal income taxes which in most cases they don't earn enough as a college student. Did I get that right? Again, much thanks for the input.

[spanel]

1/2 right. Parents claim child and college credit. The fact they make to much is for the credit irrelevant.

Chris

[Twin Turbo Z]

We have a situation where the parents claimed all college credits and the student on their 2019 tax return. Student made around 8k in 2019. This year the student made 23k and actually paid their own rent, car insurance, gas, food, etc.. Still do. So the student will claim all credits this year. We have many in this type of situation.

One year another client received a letter from IRS questioning their "independence". All we did was type up a response and attached a few documents. That college student earned around $6,000 that year. But their parents are not in the picture and offer zero support. The student relied on student loans and the part time job to survive (as many do).

[Lion]

A support worksheet will tell the story.

[Lion]

bbrownati: Or, option B for high income parents with a college kid who has a tax liability: Parents do NOT claim student. Student does NOT claim himself. But student can claim nonrefundable AOC. No one can claim refundable in this scenario.

[dtlee]

I totally agree with everything Lion has posted in this thread.

[Dude]

It's easily conceivable that the student has taken out loans to pay for tuition (and maybe room and board too) that equal more than 50% of their own support. The income of the student is not the determining factor, only support (which is independent of income).

However for the refundable portion there is a separate earned income requirement for the 18-23 year old, in addition to support.

According to the 8863 instructions earned income determines level of support not student loans. https://www.irs.gov/instructions/i88...40194642685104

[Rapid Robert]

According to the 8863 instructions earned income determines level of support not student loans.

Try again, you have mis-read or mis-understood the instructions. Nowhere on that link you provided does it state "earned income determines level of support". In fact, earned income ONLY comes into play for the refundable portion of the credit, not the credit itself. It is not even necessary that the student actually have spent their earned income on their own support, only that they have earned income that is equal to or greater than one half of the total cost of their support.

I stand by my comment in #3, it is correct and not contradicted by the link you posted.

In fact, the link specifically defines support in accordance with my comment. "Support includes food, shelter, clothing, medical and dental care, education, and the like. Generally, the amount of an item of support will be the amount of expenses paid by the one furnishing such item." Note that the nature of the funds used to pay (earnings, loans, savings, gifts, etc) is irrelevant to the definition of support, it is simply a matter of what did it cost, and who paid it. (and yes, of course there are obscure exceptions, like the one about scholarship money).

I guess I should stop being surprised by how many tax professionals don't understand that support and income are two independent things.

[Dude]

Maybe you would be less frustrated with all of us neanderthals if you did not expect us to follow you into the weeds for something irrelevant. The OP was talking about the refundable portion of the credit. . Why would a kid younger than 24 making $2k a year even care about the non refundable part????


Line 7 1 c Over age 18 and under age 24 at the end of 2020 and a full-time student (defined later) and your earned income (defined later) was less than one-half of your support (defined later).

[dtlee]

I am sure that this does not need mentioning, but I have a dependent who for 2020 will not be a dependent because wages used for support, plus huge unemployment used for support, plus student loans used for support exceed half of the student's support. However, this student earned significantly less than half of the support and is subject to the Kiddie Tax and analogously ineligible for the refundable portion of the American Opportunity Credit.

Since the American Opportunity Credit in this case is limited to the tax liability, I just realized that the Lifetime Learning Credit is just as good but does not use up a year of American Opportunity Credit.

The software I use does not automatically make this decision, so you may need to confirm that yours does.

YMMV