AOTC Only 3 and a Half Years

[sgt-loudmouth]

It looks to me like most students can only claim AOTC for 3 and a half years of education.

Form 8863 asks: "Has the Hope Scholarship Credit or American opportunity credit been claimed for this student for any 4 tax years before 2020?"  So you only get to claim AOTC on 4 tax filings.  

For most students, that looks like:

• year 1: fall of freshman
• year 2: spring of freshman + fall of sophomore
• year 3: spring of sophomore + fall of junior
• year 4: spring of junior + fall of senior
• NO AOTC: year 5: spring of senior

Am I missing something ?

It is too late now for my oldest child, who will be taking 4 and a half years, but for my younger child, it seems to me like it would be wise to skip taking AOTC in year 1.  If he completes in 4 academic years, I still get 3.5 years of AOTC because I'll claim it in the spring of his senior year.  If he takes 4.5 or even 5 years, I'll get 4 years of AOTC.  In the unlikely case he finishes early, in 3 and a half years, I'll celebrate because he finished early, even though I only claimed AOTC on 3 years.

Assuming, of course, that the AOTC exists that long.

If you expect your child to take 4 or more years to finish college, is it financially wise to skip AOTC that first year?

[ColeenD3]

You are right in that it last for four calendar years. However, you are merely trading Fall/Freshman for Spring/Senior. You could also have your child postpone until then next calendar year. In that case, you would have:

• year 1 : spring of freshman + fall of freshman
• year 2: spring of sophomore + fall of soph
• year 3: spring of junior + fall of junior
• year 4: spring/fall  of senior

[dan1949]

How do I defer my fourth year of AOTC and take LLC for spring and fall sessions of Junior/Senior year in Turbo tax. Turbo tax is not giving me the option of taking LLC this year and AOTC in 2023 tax year. 

2022 will have in excess of $10,000 allowing the fully LLC to be taken while 2023 will provide $5000 but not S10,000 expenses.

Thanks dan1949

[NCperson]

@dan1949 -   I am going to assume you are in the 4th year of college (since you took the AOTC the past three years).   is your strategy to take AOTC in Year 5 of college???? 

that won't work.  AOTC can only be taken for 4 years (as you infer), but it can't be used for a 5th year of college. 

are you a dependent of your parents? how old are you?  what was your income this year? 

LLC is a non-refundable credit, so it is the LOWER of a) 20% * the eligible educational  expenses (net of scholarship) OR the tax liability on Line 18 of Form 1040. 

AOTC has both a non-refundable and refundable component. 

The non-refundavble credit is the LOWER of $1500 (I won't go into the math on how it comes to $1500 in this post unless it's important to you) OR the Tax liability on Line 18 of Form 1040. 

The refundable credit is $1,000 (again I won't go into the math unless that is important to you).  However, under the following condition, a student is NOT eligible for the redundable credit

a) the student is under 24 years old and provides less than 50% of his own support AND

b) at least one parent is alive AND

c) the filing status is NOT MFJ.

does that help? please provide more background if my assumption about a 5th year is not valid. 

[Carl]

Colleges work in academic years, while the IRS uses calendar years. So the reality is, it takes you 5 calendar years to get that four year degree.

One thing I always suggest is that you pay for your last semester of the senior year, before the first semester ends. That way, you pay it all before the end of the fourth calendar year. Remember, education expenses are claimed in the tax year they are paid. It does not matter what year you pay "for".

Then depending on the expenses incurred in that last semester of the senior year, while you would not qualify for the AOTC credit, you very will may qualify for the Lifetime Learning Credit.

[Critter-3]

You CAN use the LLC for one of the 5 calandar years as you asked about and to do this in the program simply indicate that you DID use the AOTC for 4 years already and the program will default to the LLC instead.  Then next year you can use the AOTC again.