Please help me with American Opportunity, Hope or Lifetime Learning tax credits?

ImNewbie · 07-12-2012, 04:34 PM

As my post says I really need to understand this :American Opportunity, Hope or Lifetime Learning tax credits.
I saw it on my FASFA, I am a Junior on the Fall and I had no idea about this! I am honestly a newbie, and when We did our taxes and our preparer said I got a "credit" for just the first two years so I was not eligible anymore!
So on further research I found out that some credits had been extended for four years rather than 2!!!

Please help me understand this on a simple way, and if I am eligible, because it sounds like I am? If I am what can I do?

My stats: I am a dependent student
Working on my first BS
My mom's income is 25,000
My income is 7,000
We are from an ethnic minority.

entomom · 07-12-2012, 05:08 PM

Here's the IRS publication on education tax credits, the boxes with overviews are pretty straightforward:

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

Ethnicity is not a factor. You might need to get a new accountant.

happymomof1 · 07-12-2012, 05:08 PM

All of the information is at Internal Revenue Service. Use the search tool to find the information for students.

If you determine that you would have qualified for one or the other of theses in an earlier tax year (or earlier years), you can file a 1040x corrected return for that year.

Good luck!

swimcatsmom · 07-12-2012, 05:57 PM

The Hope credit used to be for just 2 years, but it does not currently exist. Through 2012, it has been replaced by the American Opportunity credit which is available for the first 4 years of undergrad. The AOC was authorized for tax years 2009 to 2012, which any tax preparer should know. The maximum credit is $2500 on $4000 of qualified expenses (100% of the first $2000 and 25% of the next $2000) of which 40% or up to $1000 is a refundable credit (a refundable credit is one you can get even if you have no tax liability).

Lifetime learning credit does not have a time limit at all. It is much less generous than the AOC with an annual maximum of $2000 on $10,000 of qualified expenses (20% of up to $10,000) and is not refundable.

dukedad · 07-12-2012, 06:18 PM

Not sure where this sits within the bigger budget mess approaching for next year, but Obama has in his budget a permanent extension to the AOC credit:

"Permanently extend the American Opportunity Tax Credit (AOTC) -- a partially refundable tax credit worth up to $10,000 per student over four years of college. AOTC benefits more than 9 million students and their families"

Obama's 2013 Budget Request Makes Student Aid and College Affordability Top Priorities - National Association of Student Financial Aid Administrators

CTScoutmom · 07-13-2012, 09:39 PM

You are a rising Junior, which means you started as a Freshman in 2010 - is that correct?

You mother will have files tax returns for 2010 in 2011, and claimed the American Opportunity Credit
She will have filed her 2011 tax return the beginning of this year, and again claimed the American Opportunity Credit. Those are your 2 years, which would have been the limit under the old "Hope Credit" rules.

You need to find a copy of the 2011 tax return in order to determine if you did in fact claim the American Opportunity Credit.

Because of your mother's income, with you as a dependent, it is likely she had no tax liability, which means she would be limited to the refundable portion, or $1000 in credit. BUT that assumes that you paid tuition of $2,500 or more to get the full credit (or took out loans in that amount). If you were on a full scholarship, you wouldn't be eligible for the credit (and unfortunately I know of many tax preparers who don't understand the rules, and have their clients claim the credit based on tuition billed, but paid via scholarship and grants.

As swimcatsmom indicated, currently this credit is set to expire for tax year 2012, which means you mother could still claim it when she files next year. But that's not really relevant to your current question. You need to know whether it was claimed last year, because it is a form of income and a resource that may have been available to reimburse tuition you paid last spring. Your mother's tax preparer is required by law to provide her with a copy of the tax return - I advise having that in front of you as you fill out the FAFSA, because you will be asked about specific line items. AOC information is on form 8863 and carries to line2 31 and 40 on form 1040A, or lines 49 and 66 on form 1040.

ctinct · 07-14-2012, 06:31 AM

Oh, wait. Crap. Loans count? I pored over all the info last season and only counted the stuff I actually paid out of pocket, which was less then the maximum allowable for the AOC. I thought that eventually, if the tax laws stay the same, I'd get to claim the interest on some of the loans in the future (the PLUS, not my dd's Staffords), so I figured that a) this would be sort of double dipping, and b) it wasn't actually ME paying this money, it was the lender's money that was sent to the school. If it's true that loans do count towards my contribution I may have to file an amended return. Won't THAT be fun.

As I think I said last tax season, someone needs to rewrite the tax code so half-way intelligent people can understand them. I'll have to do some research again.

happymomof1 · 07-14-2012, 09:28 AM

The AOC can be claimed in two tax years that cover the first two years of college. But those first two years of college fall in three different tax years. This means that you can choose which of those three tax years to use the credit in. Since it looks like you will be filing amended returns to claim the credits that you missed, be sure to do all of the math first.

swimcatsmom · 07-14-2012, 03:07 PM

happymom - The AOC can be claimed in 4 years. The Hope was just for 2 years but AOC, which replaced/amended the Hope, is for 4 years.

ctinct - Yes, qualified expenses paid with loans are eligible for the AOC.

CTScoutmom · 07-14-2012, 03:27 PM

Hope was only 2 years,and non-refundable; AOC is 4 years and partially refundable. Note that most 4-yer graduates pay for their education over the course of 5 years, but can only claim 4 years.

ctinct, yes you need to amend your return. It's actually pretty easy to do, if you need help PM me.

I understand you thought it would be considered double dipping, but it's not. Yes, you might be able to claim the student loan interest in the future, but you would only be claiming the interest, not the loan itself (much like homeowners can claim mortgage interest, but not the entire mortgage payments).

Yes, the loan company made the payment, but they made it on your behalf, and you will still have to pay it back - with interest. Not really any different than borrowing it from your uncle or grandmother, with the intent to pay back. If you read the instructions for form 8863, it's actually pretty clear:

Quote:

Generally, qualified education expenses are amounts paid in 2011 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds.

You can amend your tax return going back 3 years to get additional refund (it's too late for 2008, which didn't have AOC anyway), for anyone else in the same situation. Unfortunately I've seen many tax preparers who don't undertand these rules - that's why the IRS is now requiring paid prepares to register and pass their test. Hopefully it will clean up the industry a bit.

Madison85 · 07-14-2012, 07:30 PM

May not be too late to amend 2008 if the original return was filed under extension.

CTScoutmom · 07-14-2012, 08:14 PM

Only if it you filed for an extension, in which case it is 3 years after the IRS received your return (Not 3 years after the extension deadline in October). If in doubt call the IRS and ask, they can tell you both whether you filed an extension, and what date they received the return, possibly saving some effort if you don't qualify.

I you previously amended for an error, and had to pay, or if you didn't pay on time, you have until 2 years after you paid, if that is later.

ctinct · 07-14-2012, 10:05 PM

CTScoutmom, thanks for the kind offer of help with filing an amended return, but I went back and checked this afternoon and I think I actually did file correctly. I must have had a brain freeze when I said I did not claim my PLUS loan.

I can remember agonizing, verifying, reading, and researching before I filed. I sure don't want to mess around with the IRS. It's just so confusing, as in...the school sends the $$$ amount paid for the entire year on the 10whateverT , but I could only use the half for the 2011 portion of the academic year. My dd won a fairly large number of scholarships, so in order to have qualifying expenses, I had to allocate them to room and board (they were unrestricted), but had be certain that did not trigger tax for her, or she would have had to file and claim them as income. My loan for tuition was actually very small, so I claimed that as my expense for the 2011 tax year, along with what I paid for books. Didn't even hit the $4000 maximum. When I paid for the spring semester, I did not use a loan, but I paid it after Jan. 1 of 2012 so I will be able to claim that along with what I pay for qualified expenses for this fall on my 2012 return. Sound about right?

CTScoutmom · 07-15-2012, 07:07 AM

Yes, correct. If you can legitimately claim the full 4,000 it most likely still makes sense to do so, even if it results in paying tax on her part. The first 2,000 will result in $100 (10%) intax, but a minimum of $800 in refundable credit. The next 2,000 will triger another $100 in tax, but another $200 in refundable credit. If you have any tax liability, yiu would get the the nonrefundable portion as well.

It is good you checked to make sure the scolarships are unrestricted, or this wouldn't work for you.

happymomof1 · 07-15-2012, 08:58 AM

swimcatsmom -

Thanks for correcting me on the AOC and Hope! I had them scrambled in my brain.