I am returning to college Fall 2019 and I am trying to find out how I can best use the AOTC to my advantage. Since I used the Hope Credit once back in 2002 (I think that was the year) I figure I am eligible for 3 years of using the AOTC. My real question is on the “qualified expenses.” Who will determine if my expenses are qualified? If my tuition is say $1000 and my texts are $300, does that mean I can go out and buy $700 worth of notebook paper and pens and get a $2000 tax credit? Does everything I buy need to be itemized if I get audited by the IRS?
Right, the Hope uses up one of your four years of eligibility for the AOTC. (Note that the maximum credit is $2500, not $2000.)
You may need receipts if the IRS asks for them. Ultimately I suppose they would decide if the materials were “needed” or not. I don’t think they would see that level of expenses on pens and paper as “needed.”
The IRS does not generally take kindly to people playing games with their taxes, so I would recommend keeping it legit.
(Our daughters’ tuition is a lot more than $4K, so we’ve never had to worry about it.)
You will, with IRS guidance.
Not unless $700 worth of notebook paper and pens are required by the school for enrollment or attendance.
Keeping good records in the event that you need to defend taking a tax credit is common sense.
You need to be at least a half time student to get AOTC. The credit is not dollar for dollar, but if you have $4000 in expenses you can get the $2500 total if your income is within limits. If you don’t owe income tax, you can’t get the whole amount - I think the refundable portion is $1000. The rest would be credited toward your tax liability. I can’t remember what the formula is but the tax softwares figure it for you once you have your total expenses, if lower than $4000. Your college will send you a form with tuition on it and you need to keep track of any additional qualified expenses and keep receipts. If your tuition statement from the school is $4,000 or more (after scholarships) you don’t need additional expenses to max out.
General supplies are not Qualified Education Expenses. If the art class requires a certain type of pens or paper, it will be a QEE. My daughters had some strange stuff that was required like lab goggles and a yoga mat and pillow, so those were included in QEE. Notebooks, paper, even a calculator or computer needs to be required. I’ve never understood why schools don’t require more things that students really do need, like computers and calculators, on the supply list. It doesn’t cost the school anything to put it on the ‘required’ list.
I had my kids keep a running list of things they’d purchased that were required for their classes, along with their books. We were never audited but we had the lists.
You can get a partial AOTC.
The first $2,000 of the credit is 100% of qualified education expenses.
So if you have $1,300 in tuition and book expenses you could get a credit of $1,300.
I wouldn’t spend $700 more on expenses that are probably not qualified for AOTC to get $700 more back, that’s a zero sum game.
It is my understanding that a computer is a qualified expense and does not explicitly need to be required from the school. I thought this was a change made in the past few years.
You are confusing American Opportunity Tax Credit qualified expenses with 529 qualified expenses.
I think there is a strong argument to be made that any course that requires an access code would thereby require a computer. What good does buying a code do if you don’t have a computer to use the $150 code? I don’t know that the IRS ever gets that far into the weeds when auditing and I took the risk that first year and included the computers as part of the QEE. We were not audited so I don’t know if that argument would have been accepted. One daughter went to a STEM school and I called and asked if a computer was required. All I could get anyone to say was “Everyone has a personal computer.”
Thanks for the correction. I guess when you use both a 529 and the AOTC (making sure to not pay $4K from the 529), it’s pretty easy to say the $4K was for tuition and the 529 paid for the more liberal 529 qualified expenses. But your point is well taken.