What am I doing wrong in trying to claim the American Opportunity Credit?

[collegeparent]

Please tell me what I am doing wrong:  daughter meets criteria to be claimed as dependent and to qualify us for the American Opportunity Credit, and her dad and I (filing married) meet criteria to claim credit.  She works and goes to full time.  AGI is 14855.  Taxable income 2245 according to TT.  

Attended two colleges full time in 2021:  

UF:  1098T box 1is 2299.50.  (NOTE:  they do not include $303 dollars here which were for mandatory health and transportation fees)

                     Box 5   2852.52  (this does include the $303 referenced above as well as $250 refund from Bright Futures for who knows what)

USF:  1098 T   Box 1   4224.87

                          Box 5   1895.21        (which was all bright futures money.  She paid the rest of box 1 with $1053.72 which was from FL Prepaid, and a personal check for 1275.94)

She also had $84 qualified education expenses for books.

When I did her taxes in turbo tax, the education information section under the education summary brought me to a screen entitled "education expenses used for a tax credit."  There was a line at the bottom that said: amount used to calculate education credit and TT had filled 1861 in that box.  Information above that box tells my daughter that her  total qualified education expenses are $6,609.  TT goes on to say:  "These expenses make your distribution of educational funds nontaxable.  However, if the person who claimed you as a dependent also used some or all of these expenses to claim an education tax credit, we need to know what amount was used for a credit because it might make part of the distribution taxable.  For example, if the person who claimed you as a dependent also claimed the American Opportunity Credit for these expenses (which applies to the first $4000 of education expenses), you would enter $4000 below."  I changed that number to $4000 and it changed absolutely nothing on her form.  There was no scholarship added as income.  Nothing.  The only thing I did notice is that her FL prepaid was changed to taxable income of 163.

Moving on to my own income tax form, I entered everything expecting a $4000 American Opportunity Credit, but TT is only giving me a credit of $1861, which is the same amount it had filled in the box on her form before I changed the number to $4000.

Should I be able to claim the entire $4000?  What am I entering incorrectly?

[FangxiaL]

The American Opportunity Credit is worth $2,500 maximum, which includes the refundable portion of $1,000 and the nonrefundable portion of $1,500. If you have income tax liability based on your income, the $1,500 will reduce your taxes to $0, the unused portion will be unused and not refunded. The $1,000 refundable portion is considered a payment, which will be refunded to you if you have no tax liability.

Line 29 of Form 1040 reports the American Opportunity credit. To check to see if you received the credit:

1. Open or continue your return
2. Click on Tax Tools >> Tools to open the Tools Center
3. In the Tools Center, click on View Tax Summary
4. On the left, click on Preview my 1040
5. Scroll down the 1040 form to Line 29 to see if American Opportunity Credit is claimed on your return. See the screenshot below:

[collegeparent]

Thanks so much for your response.  I realized I was using some of the wrong terminology in my original post (I think I have been at this too long!).  What I meant to say was I was trying to obtain the entire $2500 credit on $4000 worth of her college expenses, even if she had to claim some as income.  I did look at my 1040 as you suggested, and line 29 shows the American Opportunity Credit is $744.  Our taxable income was 94,636, and we had over 12,000 held in taxes (owe 9,153).  It seems like we should be able to get a much larger AOC.

[RaifH]

Box 29 only includes the refundable portion of the American Opportunity Credit, which is 40% of the total credit. The remainder appears on Schedule 3, Line 3, which feeds into Form 1040 Line 20. By my math, if the refundable portion is 744, the total American Opportunity Credit is $1,860. That is your Box 1s - Box 5s + 84 for books. 

You can get the remaining 640 of credit, but you would have to make $2,140 of scholarship taxable on her return. The terms of the scholarship or grant must allow it to be used for expenses other than qualified education expenses to use this potential tax-saving technique. To do this, just reduce the box 5 amount by $2,140 on your return. 

On her return, she would have to claim that $2,140 as income if it was not used for qualified education expenses. She can answer Yes to Did you pay room and board with a scholarship or grant? and enter $2,140 if her scholarship allows. This will enable you to maximize the American Opportunity Credit on your own return.