AOTC

[TaxGuy11]

Turbo tax is not letting my child claim the AOTC (American Opportunity Tax Credit) because they can be claimed as a dependent on my return.  However, I am not going to claim them as a dependent because they will get more credit for the AOTC than I will due to phasing out on my return.  Why is turbo tax not letting them claim the credit? Thanks

[Bsch4477]

In the personal information section you should see two questions. One asks if the taxpayer CAN be claimed as a dependent and the second one asks if the taxpayer actually is going to be claimed. Be sure those are answered correctly. 
You will also see questions about whether the taxpayer has a living parent and whether the taxpayer earns more than half of their support. 

[Critter-3]

Even if you are not going to claim them as a dependent they  will only be eligible for the NON refundable AOTC ... they cannot get the refundable portion.  So if their tax liability is already at zero it will not help them any. 

[TaxGuy11]

Hi, that is correct, when I answer those questions to say she can be claimed as a dependent but that she will not be claimed as a dependent, it says she is not eligible for the credit.  If I change the questions to say she can't be claimed as a dependent and that she supported herself more than half the time, it gives her the credit.  She had minimal earned income so her tax liability is 0 and she only gets 1,000 of the AOTC.  Seems like maybe an issue with the software??

[TaxGuy11]

Hi Critter-3, their tax liability is zero, but as I understand the AOTC still allows a portion of the credit beyond that, up to 1,000.  If I answer all the questions to say she can't be claimed by anyone else and supported herself, it gives her the 1,000 credit.  But if I say she can be claimed by someone else but won't be claimed, it says she isn't eligible.  

[Critter-3]

The program is very correct  ... she IS your dependent so she must indicate that on her return  EVEN IF you will NOT claim her so she is NOT eligible for the refundable portion of the credit.   If you file the return trying to get the refundable portion of the credit then not only are you filing an incorrect (fraudulent)  return but the IRS will not allow it. 

To get that part of the credit she must be self supporting  using earned income  not student loans, grants or scholarships.  So if her income is less than the standard deduction she is not self supporting thus she is your dependent thus no refundable credit.  

Put her back on your return so you at least get the $500 other dependent credit for her. 

[Hal_Al]

She cannot get the $1000. Period.  It's not the qualifying as a dependent issue.  It's the earned income issue.

If you also don't qualify, then the AOC  is lost. You should claim her as a dependent to get the $500 other dependent credit. 

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. 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. 

Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863