Education deduction or credit

[Arem1]

My daughter is a freshman in college, and she is filing her first tax return. Her only income is from a scholarship. The 1098-T has $19985 in box 1 and $16079 in box 5. When I entered this information in Turbo Tax, it recommended a Tuition Deduction of $3906 rather than a credit. Given that her taxable income is $0, what is the point of claiming a deduction? Wouldn't she be better off with a credit? If so, is there a way I can get Turbo Tax to pick the credit? Thanks.

[ToddL99]

Please clarify - are you claiming your daughter as a dependent on your tax return?

Also, on her return, has she indicated that "Someone else can claim me as a dependent" and that "someone else" will claim her as a dependent on their tax return"?

[Arem1]

I am not claiming her as a dependent, and she hasn't marked the checkbox that says "can someone claim you as a dependent". She has also checked the option that says "No, my earned income provided less than half of my support".

[ToddL99]

In order to claim any Education credit, she would have to claim herseIf as a dependent on her own return. To do that, she should indicate that she provides more than half of her support whenever the program asks a "support" question.

Please revise the interview where she was asked how much of her support she provided, and indicate that she provided more than half.

Update this post if that doesn't open up the option to claim the credit.

[Hal_Al]

It is highly unlikely that she does not qualify as your dependent.

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,400), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.  TT will check that box on form 1040.

That said, the only reason she has for filing a tax return (as a non dependent) is to claim the rebate recovery credit ( stimulus payment ).  She is generally not eligible for the refundable tuition credit (AOTC) because she does not support herself with earned income.  That's why TT is selecting the deduction (TFD) instead, even though it is useless (the software isn't sophisticated enough to make that differentiation)