AOTC American Opportunity Tax Credit - "independent" student

[whatusername]

Student status complicates the AOTC so here's my status:

Earned income does not provide over 50% of my support BUT other income does so I am not claimed on my parents return.  (Support is approx 25% earned income,  25% 529 distribution, 25% from personal savings and 25% K1 trust income).  I am under 24 and file my own return.

I am a full time student.  I did not take the full amount of room and board and tuition out of 529, leaving $2000 +/- of tuition to apply to AOTC.  It is my understanding that I can claim AOTC but not if it's refundable.  

So if taxable income is 42,200  and individual exemption is 12,200 leaving net taxable income of 30,000 for a total tax of $924 all of which would be eliminated with AOTC.   
Is this correct?

[Hal_Al · Accepted solution]

That is correct, the under 24, earned income support rule,  applies only to eligibility for the refundable portion of the AOTC.  So, you qualify for up to $1200 of credit (60% x $2000).  So, if your tax liability is only $924, it will be wiped out.

But the tax on $30,000 taxable income, for  Single filing status, is $3413, not $924.

[whatusername]

I neglected to mention that quite a bit of income is capital gains, that's why my calculated tax is lower.  Thanks for the reply and for confirming my reading of the rules.

[Carl]

Earned income does not provide over 50% of my support BUT other income does so I am not claimed on my parents return. (Support is approx 25% earned income, 25% 529 distribution, 25% from personal savings and 25% K1 trust income). I am under 24 and file my own return.

Why do your parents not claim you as a dependent on their tax return? They absolutely qualify to do so. The support requirement is on the student, and *only* the student. There is absolutely no requirement what-so-ever for the parents to provide any support. Not one penny. My point is, you *QUALIFY* to be claimed as a dependent on your parent's tax return. Weather they actually claim you or not is irrelevant. Either way, you the student are still required by law to select the option for "I can be claimed on someone else's tax return". It does not matter if they actually claim you or not.

Is this correct?

The above is concerning the AOTC. Yes it's correct provided your parents do not actually claim you as a dependent. But remember, They *do* qualify to claim you. THerefore you *MUST* select the option to indicate that you can be claimed as a dependent on someone else's tax return. Again, it does not matter if they "actually" claim you or not. It's a fact that they "QUALIFY* to claim you.

Now even after selecting that option, when working through the AOTC part you will be asked if your parents "QUALIFY" and you will say yes. Then you'll be asked if your parents "acutally claimed you" and you will say NO. Then if you have sufficient "earned" and "taxable" income to apply to the non-refundable portion of the AOTC that you may qualify for (assuming you will qualify) that will reduce the tax liability on *your* earned income.

It will not reduce the tax liability on any excess scholarships, grants or 529 funds that were received by you and not used for education.

[Hal_Al]

The parents do NOT absolutely qualify to claim you as a dependent.  You state that you provided more than half your own support, just not with earned income.   That would disqualify your parents from being able to claim you. 

However,  distributions from a 529 plan, where you are the beneficiary and your parent is the owner is  usually considered support provided by the parent and not by you. Reference: https://www.savingforcollege.com/articles/the-impact-of-529-plans-on-claiming-a-dependent

Trust income, where you are the beneficiary of the trust, is considered your money.  But, mere receipt of investment  or trust money is not support .  You must actually spend the money on support.  If you put the money back into savings or investment, you haven't spent it on support. and it doesn't count for the dependent support test.