Help in regards to the American opportunity credit

[JessicaAnn92]

Hello, I am 29 years old and have gaps in my college education. I started many many years ago but frankly didn’t care about college till I was in my 20s. I graduate this July with my associates,  I currently don’t have a degree and do not have 120 credit hours which is considered a bachelors degree. I have obviously been in college for more than 4 years but consistently had to take breaks. I can honestly says I don’t know how many times I have claimed the American opportunity credit and fear I may made a huge mistake in my past filings (one of my biggest fears) - did I make a huge mistake or am I ok if I claim the American opportunity credit this year. 

[MayaD]

You need to make sure you are qualified before claiming the American Opportunity Credit. If the IRS audits your return and finds your AOTC claim is incorrect and you don’t have the documents to show you qualified, you must pay back the amount of the AOTC you received in error with interest.Irs.gov

However, you might qualify for the Lifetime Learning Credit or the Tuition and Fees deductions.

One of the advantages of the Lifetime Learning Credit is that you can take the credit every year for higher education, as long as you meet all of these qualifying requirements:

• You, your dependent, or a third party paid qualified education expenses for higher education
• The qualified education expenses were for an eligible student
• The eligible student is you, your spouse, or a dependent on your tax return.
•  For the full credit, your 2021 MAGI (modified adjusted gross income) is less than $59,000 ($119,000 if you are filing jointly)

[JessicaAnn92]

I think what’s confusing me is the 4 year rule. I get a 1098-T from my college as well.

[Hal_Al · Accepted solution]

@JessicaAnn92  said "I think what’s confusing me is the 4 year rule". 

You meet the 4 year rule. That is, you are not considered as having completed 4 years of post secondary education. 

But there is a 2nd "4 year rule" You may not claim the American opportunity credit (AOC or AOTC) and/or it's predecessor, The Hope Credit, more than 4 times in your college career.  Any AOC or Hope claimed by your parents, while you were their dependent, count against your 4 times.  You must have been half time or more to claim either of those credits. The AOC dates back to 2009. 

Q.  Am I ok if I claim the American opportunity credit this year?

A.  You should make an effort to review your tax files.  Ask your parents if they claimed it.  If you don't remember claiming it, your probably didn't.  But, as the other reply said, there is some risk of getting red flagged by the IRS, even to the point (unlikely) of tagged for a fraudulent return. 

You can only get a tax transcript going back three tax years. If you need something older than that, you'll have to order a copy of your actual filed tax return. You can get one for the current tax year and as far back as six years. https://mileiq.com/blog-en-us/get-copy-tax-return-transcript

[JessicaAnn92]

@Hal_Al Thanks for replying. I am 100 percent positive that neither of my parents claimed the AOC on their taxes. I’m certain 🙂 And in regards to “half time” at my school, I’m also certain every time I did claim the AOC I was atleast half time which at my school is 6 or more credit hours. 

would it be safe to just not claim the AOC this year on my taxes. I also want to add, i quit my job last April (only worked 4 months) to become a full time student. Should I even file a tax return because I made less than the standard deduction 

[KrisD15]

"would it be safe to just not claim the AOC this year on my taxes"

Sure, you are not obligated to apply for the credit.

If you don't know how many times the American Opportunity Tax Credit has been used, it's certainly "safe" to just not claim it, but you might be missing out on a larger refund.  

Answering tax questions on this education credit (AOTC) can be difficult because this is an area where the IRS gives you, the Taxpayer, options. Your decision to apply for a credit should be based not only on what has happened in the current tax year, but also what has happened in past tax years, AND what will occur in the future. 

You say you honestly don't remember how many times you claimed the credit, and that's problematic. To apply for the American Opportunity Tax Credit, you need to answer whether you (or anyone claiming you as a dependent in the past) have claimed the credit 4 times. That is the limit of times you can claim the AOTC. 

Next, the credit is REFUNDABLE meaning even if no tax is due, the credit can increase your refund. 

The last time you can take the AOTC ( If it has not been used 4 times) is in the tax year you finally earn the degree. It is wise to plan ahead, would it be more advantageous to take the credit this year or next? 

You say you made less than the Standard Deduction. Can someone else claim you as their dependent? If so, and you won't have a tax liability, you can't take the credit on your return. 

There is the option of the Lifetime Learning Credit, however that credit is not refundable The Tuition and Fees deduction is no longer available for tax year 2021.

Lastly, should you file? Below is a link to an IRS interview to determine if you NEED to file. Keep in mind that the IRS may need your information for Stimulus payments if you have not received yours. 

IRS Link Do You Need To File

[JessicaAnn92]

@KrisD15 . even if i would missing out on a larger tax refund, i dont feel comfortable anymore claiming the AOTC due to now getting a better explanation. I have been in college for more than 4 years (will finally be graduating in July this year), and it was a misunderstanding on my part and thought that that AOTC can still be claimed even if i did not earn a 4 year degree yet. i read on a another post that you can still claim the AOTC if you are still within the "4 year degree limit" and it doesn't matter the length that you have been in school. the last thing i want is to get in trouble with the IRS for an ignorant mistake on my part. No one has claimed me as a dependent and i am absolutely certain neither parent claimed the AOTC.

[DaveF1006]

It depends on how long you have claimed the credit.  If you have already claimed it in the previous 4 years, you cannot claim it for the 5th year even if you haven't graduated yet. This makes sense because there are professional students that attend school but may years to graduate thus it is unreasonable to expect these students to be rewarded the AOTC year after year. 

Here is an IRS link I have found to support my answer.

[ Edited 01/06/22|08:39 PM PST]

[JessicaAnn92]

@DaveF1006 I totally understand now. I will never claim the credit again. I would more than likely be claiming more than 4 times and I’m not going to risk anything 

[DaveF1006]

@JessicaAnn92 All is not lost. You can still qualify for the Lifetime Learning Credit even though it isn't as attractive as the AOTC.