Discussion:AMERICAN OPPORTUNITY CREDIT (EDUCATION)(REFUNDABLE PORTION)

FORM 8863 INSTRUCTIONS (copy and posted directly from the IRS website)

Part IV Refundable American Opportunity Credit

Line 15

If you were under age 24 at the end of 2009 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit, which is figured in Part V, will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if 1, 2, and 3 below apply to you.

1. You were:

 A. Under age 18 at the end of 2009, or

 B. Age 18 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below), or 

 C. A full-time student over age 18 and under age 24 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below).
 

2. At least one of your parents was alive at the end of 2009.

3. You are not filing a joint return for 2009.

Q. If I am 17 years old and I am married filing a joint return, DO I QUALIFY?

Q. If I am 18 years old and both of my parents are dead, DO I QUALIFY?

Q. If I am 19 years old and I am a half time student, DO I QUALIFY?

NOTE: THERE SEEMS TO BE SOME CONTRADICTIONS IN THE WORDING,IT JUST DOESNT MAKE MUCH SENSE. PLEASE READ IT CAREFULLY AND IF YOU ARE ABLE TO MAKE SENSE OF IT, I WOULD APPRECIATE A RESPONSE.

Assuming 1, 2, and 3 must be met.

Q1: No. You are filing a joint return, so #3 is not met. Q2: No. #2 is not met Q3: No. #1 is not met because "C" is not met because the student isn't full time.

Q2: Need more info. #2 is met but don't know about income/support test in number 1.

Q3: Need more info. support/income test, both parents alive? Filing joint return.

Must admit this is my first exposure to this issue. Thanks for pointing it out. I just changed compnay policy so we will no longer do student returns if under age 24. (kidding)

Also if under 24 must be filing a joint return to qualify.

Also you don't qualify if you are under 18.

It does seem like this is not correct. It is hard to imagine that all the other requirements were written only for orphans?

taxbilly

This is going to get interesting. 2009 Pub 970 is not yet available. Pub 17 does says "credit is refundable for most taxpayers". JK lasser has info simial to the form instuctions, US Master Tax guide just says it is refundable.

I have an idea, lets try to get a law past saying no tax law changes can be made after June for the upcoming year. Yeah right. Wake me up please!

If 1, 2, AND 3 apply, you do NOT qualify for the refundable credit.

Q1: You are filing a joint return, so you do not not qualify. (3) Q2: You do not have at least one alive parent at the end of 2009, you do not not qualify. (2) Q3: You are not a full time student, you are not under age 18, you are not age 18, you do not not qualify. (1)

Testing for a negative always is a little confusing, but the language seems clear enough. For all 3 scenarios the taxpayer would qualify for the refundable credit because at least one of those 3 items do not apply to the taxpayer, and all 3 must apply to disqualify the refundable credit.

Assuming all other qualifications are met (qualified expenses, not phased out, etc...)

I'm sure I'm missing something though, seeing as how the IRS can't figure out the answer to those questions?

-were under age 24 at the end of 2009 (true, so test whether all three concitions apply) -1. You were: A. Under age 18 at the end of 2009, (true this condition applies to this taxpayer) -3. You are not filing a joint return for 2009. ( false this taxpayer is filling joint return, no further testing required all three conditions not met therefore taxpayer qualifies for refund of credit)

Q. If I am 18 years old and both of my parents are dead, DO I QUALIFY? -under age 24 at the end of 2009 (true, test for conditions,) -2. At least one of your parents was alive at the end of 2009. (false this condition does not apply, therefore no further testing necessary this 18 year old would qualify for refund of credit)

Q. If I am 19 years old and I am a half time student, DO I QUALIFY? -If you were under age 24 (true, test for conditions) -1. You were: A. Under age 18 at the end of 2009,(no, test whethier either B or C apply) -or B. Age 18 at the end of 2009 (false, This 19 year old is between 18 and 24 test for C) -or C. A full-time (no)student over age 18 and under age 24 at the end of 2009 (does not apply only half time student, none of three paths to exclusion apply, therefore condition 1 is false/ does not not apply and no further testing needed, tax payer qualifies to have credit refunded)

This is essentially the same answer as David1980, I just found his use of the word qualify under the evaluation of each question confusing so I have mirrored the IRS language and used apply when evaluating conditions.

If you look at the instructions for form 8615 (Kiddie Tax) you see the same criteria.

For example, if a student (subject to the Kiddie Tax) under age 24 (who had say 10,000 in investment income) could not be claimed as an exemption on his parents return because the student provided over 50% of his own support, but less than 50% of his support was provided via his earned income -- the student would not be eligible for the refundable portion of the credit.

Actually PVCC-CCIFP you arrived at different conclusions than David did above and I think you are correct. Q1 you conclude taxpayer does qualify David concluded taxpayer does not. I was having the same problem as others getting my head around the logic and I like the way you have set it up. Basically one "false" or "no" answer to the three questions means taxpayer qualifies.

So many double negatives and hard to follow logic!

Evaluation for your clients circumstances as you present them: -If you were under age 24 (true she is 22, test whether all three conditions apply) -3. You are not filing a joint return for 2009. (False, She is filing a joint return, this condition does not apply, therefore no further testing needed she qualifies for the refund)

MFS filers don’t qualify.

Taxpayers who would be subject to the Kiddie Tax on unearned income don’t qualify unless they file MFJ.

Everyone else qualifies.

Not quite, I concluded the taxpayer does not not qualify. Which is the opposite of not qualify. Because the 3 point test is testing a negative (if 1 of the 3 apply, you do not qualify) I simply added a 2nd not (just showing the confusion the negative tests create, and the "double negative" which creates a positive others have noticed. I think the fact you read my "not not qualify" as "not qualify" is proof of how easy it is to misread this test. Then again, that's why this very topic exists!) All 3 scenarios I concluded taxpayer does qualify.

Just read it very literally and it works.

Most students in the range above will not qualify for the refundable portion. Most do not provide over 50% of their support via earned income. Most have a parent alive. And most are not filing a joint return.

I had two problems, one similar to Etax's issue. No definitive answer.

I asked about an example of a TP under 24 y.o., not being claimed on anyone else's return. Tax payer claiming the exemption, has a living parent from whom there is no support. TP going to school at a cost of $10,000 paid for by an Irrevocable Trust set up for that purpose (no K1). TP works part time. Earnings cover necessary expenses not covered under the Trust Agreement.

AMT and Kiddie tax rules seem to be blocking the refundable AOC, even though TP is not claimed elsewhere, receives no support from living parent, and does not appear to be subject to the kiddie tax.

I would love the IRS to clear this wording up.

Second issue: TP finishes 4th year of undergraduate school in the Spring, starts 1st year of graduate degree in the Fall. IRS rules asks what the TP's status is at the start of the year. Answer indicates TP qualifies for AOC. However, the TP has qualified ed expenses in the Fall. Rule says you can only use one credit. It would seem that all expenses could be calculated under AOC, for which TP qualifies. The issue is that some of the expenses are outside the fourth year of undergraduate studies, because the the school year and the academic year don't mesh.

Does the TP lose credit for Fall expenses, or does the TP include all expenses in AOC? The language says claim the credit which gives the most relief, but doesn't provide guidance for the expenses of hundreds of thousands of students who will be graduating in the spring and starting graduate studies in the fall.

Run the numbers both ways. AOC with just the spring tuition, all tuition paid during the year as a tuition deduction or all tuition paid during year as a lifetime learning credit.

I think it is not impossible but pretty unlikely that when you factor in everything, food, clothing, education, housing, recreation, medical, etc. that one's total support would not exceed 6000 in a year.

You can bet on one thing. That a parent of a student in college who only earned 3000 dollars, that parent is going to claim that student as a qualifying child for dependency purposes and lay claim to the educational credit.

There are so many traps and this refundable credit has only added to them.

Discussion:Refundable_AOC_-bet_you_didn't_know...

Would love some feedback on this. It looks to me like the form is wrong. Nowhere it the descriptions of the new credit does it hint that this is the case. Correct me if I am wrong, but it looks like a person that does not qualify for a refunable credit (if and when we ever figure that out :)) will only be getting 60% of the AOC regardless of tax liability.

Tax Liability = 2000

AOC = 1000

The way I am understanding the form the taxpayer would only get credit for 600 of the AOC.

Then again I am not quite sure what you are alluding to. I don't see how someone with a 2000 tax liability could end up getting only a 600 dollar credit assuming they had paid enough in educational expenses.

Ddoshan - Not sure but maybe I am loosing it.

Instructions for line 16 of form 8863 allocate 40% of credit as refundable and 60% of credit as non-fefundable - regardless of tax liability.

So if tax liability, before credit, is 2000 and the AOC is 1000, 600 is allocated to non-refundable and 40% to refundable. If person is not eligible for refundable portion it would seem they are only getting 60% of the credit.

There is a reason which I admit I find a little difficult to grasp why they deny the refundable portion of the credit to taxpayers that meet those 3 criteria. Pretty much anyone that has a 2000 dollar tax liability is more than likely going to qualify for the refundable portion of the credit.

I have a situation where a 20 yr old works and whos parents dont support her, lives with grandmother, and took out a 20,000 loan to go to school. By the looks of the law she may not qualify, but there seems to be a grey area...like, what if rent is free? so lodging costs her nothing, and she pays all her own food, transportation, entertainment and clothing..doesnt that satisfy her as supporting herself? how are you suppose to calculate free rent into the equation as support from others? can the grandmother just say rent is worth X amount of dollar...any thoughts?

PS: sorry for repeating myself im just beat from non stop working and my brain is not functioning 100%

Thus, a child, who has attained the age of 19 and is not a full-time student, is not subject to the Kiddie Tax Rule, and would therefore be eligible for the refundable credit.

So to get the credit the taxpayer must be more than 1/2 time. But if between 18 - 24 and fulltime then.... back to the above logical maze.

On the other hand, if the child has attained the age of 19 by the end of the year, but has not attained the age of 24 by the end of the year, then full-time school attendance will disqualify the student from receiving the refundable credit unless the support requirements are satisfied.

Yes. Doesn't meet Rule #3.

Q. If I am 18 years old and both of my parents are dead, DO I QUALIFY?

Yes. Doesn't meet Rule #2.

Q. If I am 19 years old and I am a half time student, DO I QUALIFY?

Yes. Doesn't meet Rule #1C, and A and B aren't applicable. But if they were FULL time, according the the school, they would NOT qualify.

The student must be attending at least half time in order to get the AOC.

I took this statement "Thus, a child, who has attained the age of 19 and is not a full-time student, is not subject to the Kiddie Tax Rule, and would therefore be eligible for the refundable credit. " Which followed this statement: "No, there is no such requirement for someone who is 20-years old and not attending school" to mean the student was not attending at all.

No, there is no such requirement for someone who is 20-years old and not attending school full-time for at least 5-months.

thanks

Yes. Doesn't meet Rule #1C, and A and B aren't applicable. But if they were FULL time, according the the school, they would NOT qualify.

I don't quite follow this answer. Somehow I don't think it is right that simply because you are enrolled half time you would then qualify for the refundable portion of the AOC.

A half-time student who has attained the age of 19 is not a Sec. 1(g) taxpayer. However, a full-time student who has attained the age of 19, but has not attained the age of 24, is a Sec. 1(g) taxpayer unless his earned income exceeds one-half of his support amount or both of his parents are deceased.

Part IV Refundable American Opportunity Credit

Line 15

If you were under age 24 at the end of 2009 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit, which is figured in Part V, will be used to reduce your tax as a nonrefundable credit only.

You do not qualify for a refund if 1, 2, and 3 below apply to you.

1. You were:

A. Under age 18 at the end of 2009, or B. Age 18 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below), or
C. A full-time student over age 18 and under age 24 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below).

2. At least one of your parents was alive at the end of 2009.

3. You are not filing a joint return for 2009.

Q. If I am a parent (50 year old) married filing a joint return, do the above rules applicable to me from taking the credit both refundable and non refundable for the expenses incurred for my 19 year old who is eligible and claiming as a dependent in my return?.

Thanks

Can anybody back me up here, my brain is fried. 19 year old, full-time student, earned $11,000, still lived at home. Parents don't claim dependency, estimating the cost of support including the fair rental value of a local studio apartment, food, transportation, etc. comes to around $10,500. Doesn't pay rent to parents, eats some meals at home, but does eat out a lot, pays for own transportation, paid for most of own education expenses.

In my mind taxpayer qualifies for the refundable portion, but I keep reading all these discussions then second-guess myself. Any other opinions and reasonings on does or does not qualify for refundable portion. I didn't do parents tax return, but their accountant thought taxpayer should file on own. No kiddie tax implications (no unearned income).

Thanks!

This is just like people who get a refund every year saying "I never pay any taxes" when in reality they just over withheld from their job.

Therefore, the most important thing you can do (if you are working) to get the full value of the credit is to decrease your withholding. Even if you love the idea of getting a large refund check, you are throwing away an extra $1,500 that could help you during the year, if you don't do this. (emphasis in original)

I love how the article ends with: Jackson Hewitt helps you get the deductions you deserve. Try it free.

Discussion:Education credit vs. distribution from QTP

Discussion:Education Tax Credit Reduced by 529 Proceeds?

Does not address my idea that though room and board are not eligible for the tax credit, they are o.k. for spending the 529 money. So if I apply part of the 529 money to the room and board I have more than the necessary $4,000 left to score the maximum opportunity tax credit for this client.