Can't Claim American Opportunity Credit

Forum|Forum|4 years ago
February 6, 2022
1 reply
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My son is 21 and I will not be claiming him as a dependent for 2021 taxes. He is a full time student and has taken out loans and works to help pay for college. After deduction his taxable income is $0 so with paying for about $5k of his college I would think he qualifies for the American Opportunity Credit (at least $1,000 of it since taxable is $0). But when he selects "No" on the question "Did you pay for over half of your living expenses with earned income" it takes the credit away. Per the guidelines for the credit I don't see this as a requirement. Why is Turbo Tax taking this away?

Bsch4477

Employee

The credit has 2 components. The non refundable portion is only of value if you owe taxes since it is subtracted from what you owe. In your son’s case it doesn’t help him since he doesn’t taxes.

The second portion is refundable, meaning you get it whether you owe tax or not. Unfortunately, this is not available to your son for the reasons you mentioned.
Read the bottom of page 21 here:

https://www.irs.gov/pub/irs-pdf/p970.pdf

If your income allows you to get education credit you should claim him and take it.

thorstrAuthor

Thank You! The devil is in the details. What if all of the money (outside his $8k income last year) that is going toward living expenses and tuition where in accounts that have been in his name for some time (bonds, savings account, etc). I know we are splitting hairs here but this money has been put away in his name over many years in various accounts that he is now accessing.

Hal_Al

Employee

Bonds, savings account, etc don't matter, for that rule because they are not earned income.

They do matter if you want to claim him as a dependent. But, they don't matter until they are spent on support.

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.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf