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Level 1

I just enrolled in college.Pell grant & fafsa pays for school.I have very low income so I've not started making payments to fafsa yet.Am I eligible for credits/deductions

 
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Level 20

I just enrolled in college.Pell grant & fafsa pays for school.I have very low income so I've not started making payments to fafsa yet.Am I eligible for credits/deductions

No, if you are under age 24**.

 

Otherwise, maybe.  Tuition paid by loans is eligible for the tuition credit.  There is an up to $1000 refundable credit available.  There is also a loophole available to claim tuition paid by scholarships, including Pell grants. 

 

The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 2. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, she can claim $4000 of qualified expenses for the tuition credit.

 

**A student, under age 24, 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 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.

Orphans and those filing as Married filing jointly are not subject to this age 24 rule

 

 

Level 20

I just enrolled in college.Pell grant & fafsa pays for school.I have very low income so I've not started making payments to fafsa yet.Am I eligible for credits/deductions

Just one part that I would like to point out and reiterate.

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

So if you qualify to be claimed as a dependent on someone else's tax return (such as your parents) then you can not claim any credits. The key word here is *qualify*. It flat out does not matter if your parents claim you as a dependent or not. If they *QUALIFY* to claim you (and the probably do) then you can not claim any education credits at all.

There are 5 qualification requirements, with the support requirement being the most misunderstood one. That requirement reads:

If the student did not provide more than 50% of the students own support, then the parents qualify to claim the student as a dependent on the parent's tax return.

Note that the support requirement is on the student, and only the student. There is no requirement for the parents to provide any support - not one penny. There are only two possible ways the student can provide more than 50% of their own support.

 - If the student had a W-2 job or was self-employed during the tax year, and made enough money to "prove" they provided more than 50% of their own support.

 - If the student is the "PRIMARY" borrower on a qualified student loan, and sufficient funds were distributed to the student during the tax year to justify and prove the borrowed money provided more than 50% of the student's support.

Even with both of the above, it's still possible for the student to not provide more than 50% of their own support. For example, if the student has a job making $100,000 a year and receives $50,000 in scholarships, grants and/or 529 distributions. If tuition comes to $20K for the year, rent for the year comes to $15K and food, clothing and other support requirements come to another $15K, that's a total of $50K for the entire tax year.  So the $50K of scholarships, grants and 529 distributions would be applied to those support expenses *first*. Therefore it wouldn't matter if the student earned a million dollars. There's just no way possible the student provided more than half of their own support.  The parent's qualify to claim the student as a dependent on the parent's tax return.