Taxes: American Opportunity Credit

Parents Forum
1

<p>I found something that may affect many of the folks on CC, so I thought I would pass this along to everyone.</p>

<p>While completing my taxes this weekend, I also ran a TurboTax scenario for my son who is in his 3rd year at Auburn University. Although he has no income (other than a scholarship), he is eligible for a $1,000 federal tax rebate due to the 2009 American Opportunity Credit. This $2,500 tax credit allows for a 40% refund ($1,000) even if the filer had paid zero taxes in 2009.</p>

<p>Here’s the excerpt from the IRS Guidelines:</p>

<p>“Forty percent of the American opportunity credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details.“</p>

<p>Here’s the full link to the IRS news release from back in September of last year:</p>

<p>Special</a> IRS Web Section Highlights Back-to-School Tax Breaks; Popular 529 Plans Expanded, New $2,500 College Credit Available</p>

<p>Some other key facts I found were that books for ‘regular’ classroom instruction can now be considered as a legitimate expense under this credit. Before, only books and equipment specifically mandated by the university could be included as a valid expense.</p>

<p>One other small item I found was that computers and internet related services (broadband I guess) can be paid for without penalty using 529 funds.</p>

2

<p>Well, yes, but if you make under $160,000, married filing jointly, wouldn’t you and your spouse like a $2500.00 Tax Credit for yourselves, if your son is your dependent, and your “qualified expenses” on the Form 1098-T are at least $4,000.00 for 2009? </p>

<p>I work for a CPA & we are planning on getting a $5000.00 tax credit for 2009, for having two kids in college during 2009.</p>

3

<p>If he were our dependent, yes, I would be taking the $2,500 credit. However, he is his own dependent as he has been providing more than 51% of his support for the last several years.</p>

<p>Whoever takes the credit (parent or student), you just need to be sure to understand it and take it. Also be aware that the new credit applies to the 3rd and 4th years of college. I think the Hope Credit was only for years 1 or 2.</p>

4

<p>We found we qualified for that also, my son is in his 4th year and a dependent on our taxes. It helped a lot.</p>