American Opportunity tax credit - qualifying expense?

Paying for College
1

You’d think I’d have the hang of this after 3 years, but I’m still learning the nuances.

I’ve read the IRS publication, and understand that room and board can’t be used as qualifying expenses, but tuition, fees, and books can. After scholarships, my D’s tuition and fees don’t quite hit the magical $4000 mark needed for maximum credit. Her program requires few books, but does require Adobe Creative Cloud. Would the (expensive) subscription to Creative Cloud count as “books”?

I need to figure it out pretty quickly so I can budget for “prepaying” Spring 2016 in December.

2

Is there a syllabus or other course document that mandates a student subscription to Creative Cloud? It’s not a book, but the AOTC considers required “course materials” to be a qualified expense, and in my opinion Creative Cloud is a “course material” in this context. The only question is whether or not you can document the requirement.

3

Yes, and even if the QEE don’t reach $4000 you can still get the AOTC, just a lesser amount.

For example my D gets a tuition scholarship so our QEE is just fees and books which for the whole year amounts to about $1500. I intend to claim that for AOTC. Every bit helps.

4

do AOTC expenses need to be documented? do you need to show them or have receipts for taxes?

5

Why isn’t there anything like this for grad school??

6

If you’re audited or receive an inquiry you are expected to be able to document anything the IRS asks for regarding your tax return.

7

Grad school -->Lifetime Learning Credit

8

Unfortunately, it’s not as generous, and required materials are only a qualified expense if the expense must be paid to the school.

9

But not tuition? Like professional,school tuition? Too bad there isn’t some tax break for that.

10

Yes-professional school tuition of $10k can yield a $2k tax credit.

11

The Lifetime Learning Credit applies to professional school tuition. A 20% credit for tuition, required fees and materials, if those expenses must be paid to the school, up to a maximum yearly credit of $2,000.

12

That sounds promising. My kid probably doesn’t have $2000 in tax liability for 2015. Maybe she will get a decent refund. She sure could use it!

13

@mommdc - yeah, I know I can get partial - I’d rather not leave anything on the table though! Last year I used some of her scholarship money to pay for room and board (and counted it as income on her taxes), and therefore was able to get the max $2500. This year she’s an RA, so there aren’t any room and board expenses. I really can’t complain any :slight_smile:

14

You may be able to simply count all or some of the scholarship money as income, even if room and board is comped through her RA job, in order to take full advantage of the AOTC. Obviously, the benefit of increasing the AOTC would have to more than offset any increased income tax burden.

15

It might not make much difference.

The first $2,000 of QEE result in a 100% AOTC, the next $2,000 in a 25% credit, so $2,000 and $500 for total of $2,500

Let’s say you had $3,800 QEE, then your credit could be $2,450

For $4,000 QEE the difference is only $50