American Opportunity Credit Eligibility

[OZXL_10]

Dear TT Experts,

I have a quick question regarding the American Opportunity Credit (AOC)

My youngest son is 19 years old. Going through his College sophomore year as we speak. Hasn't claimed educations credits in prior years. My wife and I have claimed him as dependent in prior years. We have not included education credits either. 

Checked the requirements for AOC and he complies with all but the earning more than half of his support.

He had salary wages in 2024 of $1,250 or so. He received a form 1098-T which shows $10,493.98 in Box 1; and $ 5,875 in Box 5 for scholarships or grants. He also has an unsubsidized loan ($5K/year) that he doesn't have to start paying until after graduation, but we pay around $70/month to this loan to control interest growth. 

If my wife and I claimed him as dependent, we won't get any education credits as we have surpassed the income limit. Claiming him as dependent gives us $500.

If we don't claim him as dependent, and he files showing that another taxpayer won't claim him in 2024, Turbo Tax is providing a $ 1,000 AOC credit whether we answer No - his earned income provided less than half of his support, or Yes - he provided over half of his support with earned income. So, the $ 1K credit stays whether we select one or the other. Of course, the option to be selected should be: "No, my earned income provided less than half of my support". 

I am a bit confused as I thought that answering - No, my earned income provided less than half of my support, would disqualify him for the AOC credit, but TT is increasing his Federal Refund regardless. 

Also, if we don't claim him as dependent this year, can we go back and include him as dependent next year? Or once you go into one direction, there is no way back?

Thanks in advance for your clarification & support,

OZX  

[DawnC]

If you qualify to claim him next year, you can.   There is not a ''no way back'' rule, so you are good there.   But he should not be getting the refundable credit.

Double-check his birthday; make sure it was entered correctly and Did he answer YES to the Can someone else claim you? question?   

What version/platform are you using, Desktop or TurboTax Online? 

[Hal_Al]

Q. I am a bit confused as I thought that answering - No, my earned income provided less than half of my support, would disqualify him for the AOC credit?

A. That is correct.  You've answered something wrong, in the interview. Wrong birthday is the primary suspect. You should not even get the earned income question, because you shoulda previously answered that  he did not pay for half his living expenses (with any kind of $).

Simply saying that somebody will be claiming him as a dependent would disqualify him. 

[OZXL_10]

Thanks for the input, DawnC. Appreciate the input. 

Yes, his birthday is fine. 

Using Turbo Tax Premier Desktop 2024

Answer the dependent question as such:

Check on "Another taxpayer can claim "name" on their tax turn. Under this, check on another selection for "Another taxpayer will not claim "name" in 2024. Under this and for the question "Do either of these statements apply for the other taxpayer: This person is required to file a 2024 tax return, and This person is filing on a 2024 tax return fo reasons other than getting a refund of taxes paid or withheld. I checked yes.

Anything else I should check? Thx again!

[OZXL_10]

Thanks for the quick response, Hal_Al. Much appreciated!

Yes, I double checked his bday and it looks fine to me. I did answer the question of he did not pay for half his support, but I am still getting the credit. 

On Turbo Tax Premier Desktop 2024, I checked "Another taxpayer can claim him on their tax return, and under this I also checked "Another taxpayer will not claim him in 2024.

Please let me know if you can think of something else, but it seems I shouldn't claim any credit regardless.

Best Regards!

[Hal_Al]

"but it seems I shouldn't claim any credit regardless"

That's correct.  Nothing you've described makes him eligible for the refundable portion of the AOC. 

[OZXL_10]

Hello,

Just following up with this. As said, birthday is fine, and I am using TT Desktop Premier 2024.

While it is my current understanding that my son shouldn't receive the AOC as he hasn't earned more than half of the expenses; I started a new return in TT from scratch and it is still giving me the same $1K credit. TT is set with the understanding that no one else will be claiming him as dependent as part of that scenario. I must be missing something along the way as I'd think the software should pick on it. 

I also went to the IRS Interactive Tax Assistant and after answering some questions which didn't include the half support interestingly enough, it is telling me that he'd eligible for the AOC but not for the lifetime learning credit. Please see below the questions/answers of the interactive tool. 

While I am still a bit confused, I will go ahead and claim my son as a dependent to avoid any issues and show that he is claimed as a dependent on another return as part of his return, which I know won't show the AOC credit on his return as I have run through that scenario as well. As my wife and I are over the income limit, we won't be able to get the AOC credit either. 

Any additional thoughts would be certainly appreciated.

Thanks again!

[KrisD15]

In TurboTax he would need to select 

"Another taxpayer can claim me on their tax return"

Once this is selected, he can choose 

"Another taxpayer will claim me in 2024"

or

"Another taxpayer will not claim me in 2024"

For the situation you are describing, if he is your dependent but you don't claim him for tax tear 2024

for the student's return, he would select 

"Another taxpayer can claim me on their tax return"

and 

"Another taxpayer will not claim me in 2024"

With those selections, he could get the non-refundable portion of the credit, but not the 1,000 refund.

If his Adjusted Gross Income is only 1,255, there wouldn't be any tax liability to apply the non-refundable portion of the credit to. In that case, you're better off with the 500 credit by claiming him on your return. 

[Hal_Al]

 A full time, unmarried, student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit  (AOTC)if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit.

Reference: Line 7 instructions for form 8863.

https://www.irs.gov/instructions/i8863#en_US_2024_publink53002gd0e674

In the personal info section, the filer is asked about full time student status and marital status.  Wrong answers there could also be the source of TT coming up  with the wrong application of the AOTC.