AOTC for senior year and graduate school

[cheitzig]

I have a question about the "how-to" process of getting TurboTax to allow my daughter to claim the AOTC. I'm just doing this in advance for 2021 taxes using TurboTax 2020 as a proxy for how it will work.

Our situation is this:

• My daughter graduated this spring after four regular years of college, so prior to 2021 she has not completed four years of college.
• She started graduate school this summer/fall.
• We've claimed the AOTC only once (or maybe twice) in the years she was in college.

I created a test return using TurboTax 2020 and if I ONLY enter her undergrad 1098-T, she qualifies for the AOTC. If I check the box on the graduate school 1098-T for graduate school, it says she no longer qualifies because she has "Already completed four years of college". If I uncheck that box or remove the graduate school 1098-T, then it properly shows that she qualifies for the AOTC.

To me, this seems like a bug in TurboTax, because being in graduate school in the same year as finishing undergrad doesn't seem like a disqualifying reason for not receiving the AOTC.

Is there something I'm missing? Is there some place in TurboTax to indicate how many times the AOTC has been claimed?

This question, answered by @KurtL1, seems to be similar, but TurboTax doesn't seem to actually allow this to happen.

[Hal_Al]

Corrected 8-9-21:  

See this FAQ Q13 from the IRS website.  Depends on the facts:

https://www.irs.gov/newsroom/american-opportunity-tax-credit-questions-and-answers

For others reading this: the AOTC is limited to being claimed four times. Since graduation year is typically the 5th calendar year for most  BA/BS students, most students in this situation are limited to claiming  the LLC.

[cheitzig]

Thank you. Yes, I understood that only the undergrad expenses would qualify for the AOTC.

Is it fair to say then that it might be a bug in TT that when I add the grad-school 1098-T, the AOTC goes away?  Or, perhaps TT is making an assumption about grad school post senior year that is valid for most people (i.e., to your point, most people would've already gotten their 4 AOTC's before the spring semester of their senior year).

For purposes of testing, the only things in the return are either one or two 1098-T's. When I add the undergrad 1098-T, the AOTC @ $1,000 shows up as a refund. When I add a second 1098-T and mark it as graduate school, the AOTC form (8863) goes away and the refund goes to $0.

[Hal_Al]

Deleted 

[Hal_Al]

I decided to test it. I have desktop (not online) Deluxe.  TT gave  me the AOTC, even when I entered a 2nd 1098-T marked grad student.  Most interestingly, it counted the grad school expenses toward the AOTC.  I think this was because I indicated that 4 years of schooling had not been completed prior to 2020.

It sounds like you may have entered something wrong.  

[rjs]

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@Hal_Al wrote:

It sounds like you may have entered something wrong.  

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Or Online behaves differently from desktop. It wouldn't be the first time.

[Critter-3]

@Hal_Al   is correct ... all the education expenses count for the AOTC even the grad work so you must have entered something incorrectly.   I suggest you delete the education section and enter everything from scratch again.  

[cheitzig]

Thanks for your help. I have desktop TT Deluxe too, so I agree it sounds like I somehow have something entered incorrectly. @Hal_Al, where do you enter the four years of schooling question? I didn't see (or don't remember) that. I'll also start from scratch with a blank file and ONLY enter the two 1098-T's to see if that solves.

[cheitzig]

I just tried it again. Created a brand new return. Only entered two 1098-T's, as follows:

• 1098-T #1:
  • Box 1: 10000
  • Box 8: checked
• 1098-T #2:
  • Box 1: 10000
  • Box 8: checked
  • Box 9: checked or unchecked-- if checked, refund goes to zero; if unchecked, refund goes back to $1,000

Side note: it didn't ask me anywhere in the process about four years?

Any advice on what I'm doing differently than @Hal_Al?

[Hal_Al]

 Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. You should reach the question about having completed four years of college prior to 2020.   If you don't see it, delete the graduate 1098-T and go back to the “Education Information” section again.  After answering the 4 years question,  you should then be able to add back the graduate 1098-T.

It sounds like TT is treating the checked box 9 as saying you already completed 4 years.

[cheitzig]

I'm using desktop/downloaded, btw. I thought I'd said that, but perhaps not. Either way, yes, that was exactly the problem. I had been on that screen a zillion (approximately) times, but had NEVER "seen" the edit button next to Education information allowing me to go review the questions about four years, etc. And because I convert my file from year to year, TT presumably "counts" the years (my guess). Or, more likely, just user error on my part.

Thank you so much, TT community!

[Critter-3]

I just did a test return ... I entered one 1098-T with box 8 check for the under grad  and one with boxes 8 & 9 checked for the grad work and choose NO to having a bachelor's degree before 2020  and the program gave me the entire $2500 AOC.  The program is working correctly so are you only getting $1000 of the credit ?   If so did you have any tax liability to negate using the non refundable portion of the credit ? I 

[cheitzig]

In my test return, I didn’t have any other income, so no liability. I expect it works correctly, and that I had an error in the four years situation or something.

[Hal_Al]

There may be another issue at work here.  I assumed you were claiming the credit on your return for your dependent or  the student is  eligible for the  refundable portion of the AOC, on her return.  That may not be the case.

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. 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 if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863

[Critter-3]

@cheitzig 

Since only part of the credit is refundable  if you don't have taxable  income on the return the non refundable portion has nothing to negate.

Also, if the parents are not able to use the credit due to income limitations then they can forego claiming the child to allow the child to claim the non refundable portion of the AOTC but the child must still indicate they COULD be claimed as a dependent even if the parents will not claim them.  Using this option allows at least part of the credit to be used but is wasted if the child has no tax liability.