Q. Can I elect not to claim him as a dependent.
A. No. Only if he does not qualify as your dependent, can he claim the refundable credit. He will only get the $1000 refundable portion You need to do the calculation on how long he was a Full time student. Dropping out, even late usually means he was a student for less than 5 months. So, if it was spring semester and he was still in school any part of May, he meets the 5 month rule. For the fall, any part of Aug & Dec. means he meets the rule.
If he doesn't meet the rule, then he can't be a dependent and he can so state that on his return and claim the credit. If he meets the five month rule, then, you can elect to not claim him, but it won't work. He doesn't have enough income. While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. A full time student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support. It is usually best if the parent claims that credit.
If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return.
Q. He has decided to enlist in the military in 2025 so this is really the only year he will be eligible for the AOTC based on what I read?
A. There is no age cut off, he'll eligible while in and after military service. Yo may not want to use up one of the four allowable claims on $1000 now if it'll be worth $2500 four times in the future
