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Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

Hello.

thankful to be in this situation; but looking to pay the least taxes on this.

Student's 1098: box 1 tuition: 5000; box 5 scholarships 14400

students income 4000

parents dont qualify for aotc

 

Best way to proceed?? Can student take AOTC? student does have 2K of Qee not listed on 1098

Can student take AOTC if claimed as dependent by parent?

can student be declared independent because of all the scholarships and then take AOTC?

 

any other thoughts on how to proceed would be fabulous and appreciated

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2 Best answer

Accepted Solutions

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

A loan obtained by the student does count towards support. Scholarship does not. 

Section 152(f)(5) prescribes a special treatment for scholarships with regard to the support tests. If the recipient is a fulltime student at a qualifying educational organization as defined in section 170(b)(1)(A)(ii) and “a child of the taxpayer” (section 152(f)(5)(A)), any scholarship is excluded from the support tests. For this purpose, a child of the taxpayer is defined as a son, daughter, stepson, stepdaughter, eligible foster child, a legally adopted child or an individual placed with the taxpayer for adoption (section 152(f)(1))

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Hal_Al
Level 15

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

Q. That doesn't say anything about scholarships that cover all room board?

Q  That doesnt count as income?  . . . . if its not income, then why would she need to pay taxes on it?

 

There are three different things going on here. They're intermingled, so,  yes it is confusing. 

 

1. Can the student qualify as independent?  No. Scholarships are ignored in the support test. That is, they are not counted as support the student provided for himself.  They're third party support.

2. Are scholarships earned income, for purposes of the student qualifying for the refundable portion of the AOTC.  No, because it is not income earned from working.

3. Are scholarships taxable.  Yes. The portion of scholarships that exceed qualified expenses (tuition, fees, books and course materials) is taxable. Essentially, scholarships for room & board are taxable*. 

 

So, yes, what you're  hoping for isn't going to work, even if the reasons aren't clear. 

 

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the, AOTC rule,  kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

View solution in original post

5 Replies

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

The student’s scholarship amount is greater than his tuition (and I assume book expenses) so he has no expenses to claim for AOC. 

I don’t know what Qee is but ignoring that his taxable income is just below his filing threshold so he won’t be subject to income tax.  Scholarship amounts don’t count towards support for claiming dependency so you should claim him. 

Hal_Al
Level 15

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

Q. Can student take AOTC if claimed as dependent by parent?

A.  No.  Being a dependent disqualifies him.

 

Q. Can student take AOTC if the parent foregoes claiming him as a dependent?

A. Simple answer: no.  Or, no in your case.

A student, not claimed as a dependent, can claim the non refundable portion of the AOTC.  But, your student does not have enough income to have a tax liability to offset with the credit.  He cannot claim the refundable portion ($1000). 

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. It is usually best if the parent claims that credit.

 

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

thanks for coming back @Hal_Al 
i think what i'm hoping for isnt going to work (having student be independent - which legit we could prove so this year), but to be clear --

"You cannot be supporting yourself on parental support, 529 plans or student loans & grants." === doesnt say anything about scholarships that cover all room board and return extra money to the student.  That doesnt count as income?  . . . . if its not income, then why would she need to pay taxes on it?

 

thanks for hanging in here . . . 

 

 

 

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

A loan obtained by the student does count towards support. Scholarship does not. 

Section 152(f)(5) prescribes a special treatment for scholarships with regard to the support tests. If the recipient is a fulltime student at a qualifying educational organization as defined in section 170(b)(1)(A)(ii) and “a child of the taxpayer” (section 152(f)(5)(A)), any scholarship is excluded from the support tests. For this purpose, a child of the taxpayer is defined as a son, daughter, stepson, stepdaughter, eligible foster child, a legally adopted child or an individual placed with the taxpayer for adoption (section 152(f)(1))

Hal_Al
Level 15

Student & AOTC. parents dont qualify, student has scholarships over tuition. Can student take AOTC to reduce taxes?

Q. That doesn't say anything about scholarships that cover all room board?

Q  That doesnt count as income?  . . . . if its not income, then why would she need to pay taxes on it?

 

There are three different things going on here. They're intermingled, so,  yes it is confusing. 

 

1. Can the student qualify as independent?  No. Scholarships are ignored in the support test. That is, they are not counted as support the student provided for himself.  They're third party support.

2. Are scholarships earned income, for purposes of the student qualifying for the refundable portion of the AOTC.  No, because it is not income earned from working.

3. Are scholarships taxable.  Yes. The portion of scholarships that exceed qualified expenses (tuition, fees, books and course materials) is taxable. Essentially, scholarships for room & board are taxable*. 

 

So, yes, what you're  hoping for isn't going to work, even if the reasons aren't clear. 

 

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the, AOTC rule,  kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

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