I am a full-time student and am eligible to be claimed as a dependent by my parents. Can I claim an Am Opp Credit on my return if my parents do not claim me as a dependent?

[radwsch]

This question is a trade-off between a $500 child credit on my parents' return v. a larger App Opp Credit on the my return.  I have found conflicting advice on this question.  Page 20 of Pub 970 states,  "If you . . . don't claim on your tax return a dependent who is an eligible student (even if entitled to claim the dependent), THEN only . . . the dependent can claim the American opportunity credit.  You can't claim the credit based on this dependent's expenses."   Also, the flowchart on page 13 asks the question "Are you listed as a dependent on another person's tax return?"  It does not as "Are you eligible to be listed as a dependent on another's return?"

To the contrary, it seems clear than for Personal Exemptions (back when they were relevant), someone who is eligible to be claimed as a dependent on another's return could not claim a personal exemption for themselves.

Any thoughts?

[JillS56]

If you are claimed on your parent's return, you cannot claim the 1098-T for the AOTC credit.   Depending on your parent's income level, they can report the 1098-T on their return and if eligible get the education credit.

NOTE:   If you are between the age of 19 years old and 24 years old and a full-time student, then your parents have the right to claim you as a dependent.

[radwsch]

JillS56 -- Thanks for your reply.  I found section 25A(g)(3), which connects the education credits to section 151, and provides the rule that, if a deduction is allowed to the parents under section 151 with respect to their dependent, then the education credits are NOT allowed to the dependent, and the qualified tuition expenses paid by the dependent can be used by the parent.  That seems quite clear. 

Oddly, the Turbo Tax software seems to allow an education credit to the child/dependent in this situation, notwithstanding section 25A(g)(3).  In the Your Personal Information section, if a child indicates that "Someone else can claim [the child] on their tax return," but that "No one will claim [the child] in 2021," a a non-refundable education credit is computed on the child's return, even where the child also indicates that they are a full-time student and that their income provided less than half of their support.  That Personal info is combined with a 1098-T, which the child owned and received in her name.  I cannot figure out whether this result is intended by the software, but it seems inconsistent with the rule you explained that the dependent child cannot claim the credit regardless of whether the parents actually claim the child as a dependent.   Perhaps the TurboTax software experts have an explanation for their approach.

In any case, your answer is definitely correct.  Thank you!

[RaifH]

There is a carve-out for the American Opportunity Credit, it is not a TurboTax error. As the student, you can still claim this credit, even if you can be claimed as a dependent, as long as no one actually claims you. As @JillS56 said, if you are a dependent on your parents' return, then the credit can only be claimed by your parents. If their incomes are too high to claim it, then no one can claim the American Opportunity Credit.  

Some families with incomes too high to claim the American Opportunity Credit for themselves may actually see a benefit in not claiming their child so the child can claim the credit. If you are considering this, be sure to consider both your federal and state tax returns, as the state may offer additional benefits for the parents claiming the child above the $500 other dependent credit that is allowed on the federal return. 

[Hal_Al]

TurboTax is doing it correctly.

While technically there is a provision that allows you to claim a tuition credit, from a practical matter it seldom works out.  A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit if he/she supports himself by working . You 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. This is worth up to $2500 (AOTC shifts to all non refundable).  

I assume the reason you're considering this is that your parent's aren't eligible for the AOTC, due to income.  This only works out for the family if you have a tax liability of more than $500 to offset with the credit.  

[radwsch]

Hal AI and RaifH:

Thanks for your responses.  By way of transparency, I am a retired tax professional preparing the returns for me and my child.  I had phrased the question from the child's perspective to make it simpler.

The scenario you are describing is exactly my situation.  My child is definitely eligible to be claimed on my return as a dependent, and she fails the earned income 50% support test.   If I claim her as a dependent, I get a $500 child tax credit.  However, if I do not claim her, I had thought (following Pub 970 linked by RaifH) that she could claim an AOC of $977, which is partially caused by the Kiddie tax -- for a net savings of $477 between the two returns.  I ran that through TurboTax and got that result.  So I want your view, and Turbo-Tax's software, to be correct, i.e., that a child can still claim a non-refundable AOC if the parents simply choose not to claim the child as a dependent. 

However I was persuaded by, and am now troubled by, the language of section 25A(g)(3), which says "if a deduction under section 151 with respect to an individual [the child] IS ALLOWED to another taxpayer [the parent] . . . no credit shall be allowed under subsection (a) to such individual [the child]".  (emphasis added).  That "allowed" language seems to suggest that the child may not take the AOC if the parents are ALLOWED to claim her as a dependent, even if they voluntarily choose not to claim her.  Are you aware of any specific guidance on this point, perhaps a regulation or ruling?  Pub 970 suggests that a child may take the AOC if the parents voluntarily choose not to claim her, but the Code should prevail if inconsistent.  

Sorry to get deep into the weeds on this, but if you have any thoughts, they would be much appreciated.  Thank you!!!

[Cynthiad66]

The simple answer is that the deduction for AOTC goes with the dependent.

The American Opportunity Tax Credit cannot be claimed on Married Filing Separately returns nor under any of these conditions:

• The student is a dependent on someone else's return
• The student is a nonresident alien (unless the student's spouse is a resident and they file a joint return treating both as residents, or the parents claim the student as a dependent on their joint return)
• The student had a felony drug conviction

Here is guidance from the IRS on the AOTC

@radwsch