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Lugia36
Returning Member

Eligible AOTC student expenses

Hi. This would be my first year attending SNHU fully remotely. That requires me to have access to a computer and mine recently died. I’m wondering if I can claim a new PC as a student expense? I expect the rest of this tax year to be fully covered by grants. So for the AOTC is there a limit on this expense? Or is it the full amount of $2500?

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3 Replies

Eligible AOTC student expenses

@Lugia36 once your Qualified Educational Expenses exceed $4000 (and without getting too complicated, that is $4000 more than the scholarships), it won't change AOTC.  

 

Curious, what is your situation? are you claimed by your parents?  if so, they are the ones who are eligible for AOTC.   Can you explain your situation some more? Age? who provide more than 50% of your support? How much will you earn from working this year? 

 

The rules for AOTC can be trickly.  

 

 

Lugia36
Returning Member

Eligible AOTC student expenses

I’m 23, file independently and single. I work full time pre-tax income is 38,400. Every other school expense for this tax year (2023) is fully covered by grants. On the AOTC isn’t the first $2000 in eligible expenses credited 100% and on the next $2000 your credited 25% for a total of $2500 yearly for a maximum of four years?

Hal_Al
Level 15

Eligible AOTC student expenses

Q. On the AOTC isn’t the first $2000 in eligible expenses credited 100% and on the next $2000 your credited 25% for a total of $2500 yearly for a maximum of four years?

A. Yes.  Hence, the mention of $4000 of total expenses in the previous comment. 

 

Q.  Can I claim a new PC as a student expense, for the AOTC?

A. Simple answer: yes.  For a full discussion see:

https://ttlc.intuit.com/community/college-education/discussion/is-a-computer-a-qualified-expense-for...

 

Q. My tuition is fully covered by scholarship.  Can I still claim the AOTC?

A.  Yes. 

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

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