I am helping an unrelated child file her taxes. She was a fulltime university student in 2019 and received a 1098-T for tuition ($17,000) and scholarship ($5000). Her mother is still alive, does not claim her as a dependent, and the student did not pay more than half her living expenses, so she is not eligible for the AOTC credit. TurboTax is defaulting to a $4000 tax deduction, which is worthless to her since her income including the scholarship is under $7000 and she won't owe any Federal Income Tax. I want to preserve her 4 years of AOTC for the next 4 years when she will be eligible for the credit rather than the deduction.
How do I get TurboTax to exclude the $4000 deduction for 2019?
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The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income.
Nothing you describe would indicate that any of her scholarship is taxable. Just delete the 1098-T. Otherwise, type> letme <in the search box and it will take you to a screen to change your tuition deduction /credit selection.
That said, there are other issues here.
-Why is her mother not claiming her as a dependent and missing out of several tax benefits.
-Why is a student with so little income even filing a tax return.
-You say $4000 tuition "deduction". Do you really mean $4000 of expenses was used to claim the AOTC "credit". The is no limit on how may times the Tuition & Fees Deduction (TFD) (or Lifetime Learning Credit-LLC) can be claimed. The TFD is limited to $4000.
Thanks so much for the response. I'm not sure why her mother is not claiming the child as a dependent. This is a strained relationship with multiple issues (mother kicked the child out of the house). Her mother has assured me she is not claiming the child as a dependent. Regardless of the family situation, it doesn't make sense to lose the deduction, but there it is.
We are filing because the child had a job and wants to get her tax rebate. In addition, I assumed that she had to file because of the 1098-T and declare the income. Before starting on her taxes, I thought she could qualify for the tax credit and get some additional money for next semester's tuition. In 2020 she will be providing more than half of her living expenses, so she should qualify for the credit next year.
I thought the AOTC was limited to 4 years, regardless of whether it was used as a deduction or taken as a credit, so it was good to find out that the deduction is not limited to 4 years. As you said, she does not need the deduction.
We will simply ignore the 1098-T since she won't owe any taxes regardless.
Thanks again for your help
"mother kicked the child out of the house" is reason enough for the mother not to claim her.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit. If the child did not live with the parent for more than half the year, she cannot be a QC. To be a standard dependent, the parent would have had to provided more than half the child's support and the child must have less than $4200 income.
"In 2020 she will be providing more than half of her living expenses, so she should qualify for the credit next year." Maybe not. A full time unmarried student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working (earned income). You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants. It is usually best if the parent claims that credit.
"I thought the AOTC was limited to 4 years, regardless of whether it was used as a deduction or taken as a credit". You're kinda using "AOTC" as a generic term for tuition tax break. AOTC (American Opportunity Tax Credit), LLC and TFD are specific credits or deductions. Each has it's own rules. Only the AOTC is limited to four times.
"In essence, the stimulus check acts as an advance of your 2020 income tax refund. This means when you prepare your 2020 income tax return, there will be a line to include the section 6428 credit. The credit on your 2020 return is subtracted by any amount received as a stimulus check in 2020. If the amount you received as a stimulus check is less than the credit you are due, the difference will be included as part of your 2020 refund. If you have been overpaid by receiving the stimulus check, however, you will not be required to return any excess amount".
If the child is qualified to claim the educational credits and does not want to use the AOC (remember AOC is only for 4 years of under-graduate students) the you can use the Search topics box for "letme" which will allow you to choose the lifetime learning credit instead of the AOC.