First year of college

Forum|Forum|6 years ago
February 29, 2020
2 replies
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My daughter started her first year of college Aug. 2018. Would I say she is in her first year of college as of Jan. 1, 2019? I'm thinking yes since it's her second semester of her first year of college.

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DianeC958

Yes, that is correct you daughter in January of 2019 was still in her first year of college.

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Carl11_2

Employee

@KimbChuss since this is your daughter's first year of college you're dealing with on your taxes, let me offer some information that I hope you will find useful and helpful for future financial planning on the tax front. This is to help you get the most tax benefits possible, associated with your daughter's college years.

Colleges work in academic years. The IRS works in calendar years. So the reality is, it takes five calendar years to get that four year degree. There are a number of educational credits you may qualify for during those college years. But for most of those credits you are limited to taking them for only four calendar years. For example, the AOTC (American Opportunity Tax Credit). So when it comes to things like scholarships, grants, 529 distributions, tuition, books, lab fees, etc., here's some things to remember.

- Scholarships, grants, 529 distributions are reported as taxable income (initially) in the calendar year they are received. It flat out does not matter what calendar year it may be *for*. (the taxability of "tax free" education assistance is offset by the qualified education expenses they are used to pay for. So it all works out in the wash)

- Qualified education expenses are claimed in the calendar year they are paid. It flat out does not matter what calendar year is paid *for*.

So with this in mind, the AOTC is a credit up to a maximum of $4000 per calendar year, for a maximum of four years. But the actual amount of the credit you get each year is based on your out of pocket qualified education expenses.

It is most advantageous for this credit, to pay for the entire academic year before the end of the first semester of each academic year. (if you can of course)

For example, if you take the AOTC the first four calendar years, that means the last semester of the senior year will start in the 5th calendar year. If you wait until that 5th calendar year to pay for that last semester, then you will NOT be able to take the AOTC if you already took it in the first four calendar years.

So knowledge and planning is key here. You may find it helpful (after you get the 2019 taxes filed) to sit down at read IRS Publication 970 at your leasure, so as to educate yourself on how this education stuff works for taxes. That way, you'll be able to make better informed and educated decisions on how to deal with the college expenses as your daughter progresses to her four year degree.

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

MJJS02

So reading the two responses... A student would answer yes?--that as of the 1st of the year (beginning of 2nd semester in college) they are in their first year of college, even if 2nd calendar year of college, regardless of how many semesters' worth were paid during the first calendar year of attendance? Or is Carl's response saying that 2nd calendar year is no longer 1st year of college?

Only one semester's worth was paid the first year, but we did manage to get the full AOTC with the student taking some of the scholarships as income.

Thanks!

Hal_Al

Employee

What is the purpose of the first year of college question, in the education interview?

The reason the TurboTax program asks if this was the student's first year as of January 1, 2021 is because if it was not, the program will ask if the American Opportunity Tax Credit (AOTC) had been taken in any prior year, and if so, how many times.

If the answer is "Yes" this was the student's first year, the program knows that the AOTC has not been used yet.