Higher Education Questions.

[MGravlin]

I don't know if this is the correct forum because I am not sure it this in any way effects the W4 but I have questions regarding the American Opportunity Tax Credit and Lifetime Learning Credit and 529 plans. To explain my situation: 

I am 42, I file as single-never married with no dependants and I live in Arizona. Since August of 2023 I have been taking courses from Arizona State University (online) through a platform callled Universal Learner. This platform allows individuals to take general education (i.e. math, science, first year composition-english type courses) that upon successful completion can be transcripted to ASU or another accredited university. People who take these courses are NOT enrolled at ASU (you cannot take courses on the Universal Learner platform and be enrolled at ASU at the same time). You pay for the courses out of pocket and you they do not qualify for student aid. I have taken $4800 worth of classes that I have transcripted to ASU because this fall I will be enrolled in a bachelor's degree program from ASU. 

My question is: would the $4800 I have paid to ASU qualify under the American Opportunity Tax Credit this year? I have accepted my financial aid package for the 2024-2025 school year and this included a small Pell grant and federal studen loans, $5309 disbursed in fall 2024 and $5308 disbursed in spring 2025. Would this mean I was eligable to apply for the AOTC on my taxes that will cover this year? Since I can not do both the AOTC and the Lifetime Learning Credit (LLC), should save the LLC for any master's level degree pursuits? Also, when it comes to 529 plans, how exactly does that work-will the money I put in the plan lower how much taxes I owe or is just money that I can use for education expenses that I can use tax free? Thank you.

[marctu · Accepted solution]

Thank you for the question.  So the $4,800 you paid for prior to enrolling at ASU in the bachelor's degree program would only qualify for the American Opportunity Tax Credit if:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period^* beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

It also needs a 1098-T.  Assuming you have the 1098-T that covers both the fall term and the classes taken under this program and met the enrolled a least half time requirement for at least one academic period, it would appear that this could qualify. 

Any expenses from 2023 would need to be claimed for a credit on your 2023 tax return.  You would need a 1098-T and you would have to the same enrollment requirement as above.  The 2023 expenses would qualify for the Lifetime Learning Credit though. 

The LLC is not limited by degree program.  You can take it in multiple tax years assuming that you have taxable income.  Remember the credit is non-refundable.

Be well and safe @MGravlin and good luck.

[awillis2]

In order for Arizona State's Universal Learner Program expenses to be claimed as qualified expenses under the American Opportunity Tax Credit ("AOTC"), the following conditions must apply:

To be eligible to claim credit under AOTC, one must be:

Pursuing a degree or other recognized educational credit;

Be enrolled at least half-time for at least one academic period in the applicable tax year;

Not have completed four (4) years of the higher education at the beginning of the applicable tax year;

Not have claimed the AOTC or former Hope Credit for more than four tax years; and

Not have been convicted of a felony.

https://www.irs.gov/credits-deductions/individuals/aotc

I understand that the credits may be transferrable to AZ State towards a Bachelor's Degree.

However, by themselves, the general education credits do not appear to lead to a degree.

Upon transfer of the credits to AZ State, they can be applied towards your degree. If all other conditions are met during the same taxable year, it would be plausible to claim them under the AOTC on your federal tax return.

It is more likely that they qualify as credits under the Lifetime Learning Credit ("LLC"). 

https://www.irs.gov/credits-deductions/individuals/llc

You sound as though you are very familiar and have studied both credits intensively. The Arizona State program does appear to offer a unique and valuable stepping stone to higher education. It may behoove you to inquire with the dean of admissions or at the Registrar's office for the school's stance on AOTC and LLC.

Best wishes @MGravlin !