american opportunity credit

[morrisliberty]

hello,

Student starts college in fall 2006 and takes hope credit in 2006 and 2007 in 2008 and 2009 he takes lifetime learning credit in 2010 he finishes undergradute degree and starts graduate school fall 2010 can student take AOC for qualified expenses for spring and fall semester?
According to instructions for student for form 1098-T for 2010 box 9 If ylou are enrolled in a graduate program, you are not eligible for the American opportunity credit but you may qualify for the lifetime learning credit.
However on page 12 ch 2 Pub 970 2010 Example 2 seems to contradict the above instructions. I was told if in gaduate school you can not take AOC for those qualified expenses.

[commentator]

The taxpayer/student in the Pub 970 example was a full-time undergraduate student in 2010 which meets the requirements for the American Opportunity Credit. The Form 1098-T instruction for students for Box 9 is incomplete and therefore misleading.

[nancy65]

Mar 20, 2011 21:47:27 GMT -5 morrisliberty said:

hello,

Student starts college in fall 2006 and takes hope credit in 2006 and 2007 in 2008 and 2009 he takes lifetime learning credit in 2010 he finishes undergradute degree and starts graduate school fall 2010 can student take AOC for qualified expenses for spring and fall semester?
According to instructions for student for form 1098-T for 2010 box 9 If ylou are enrolled in a graduate program, you are not eligible for the American opportunity credit but you may qualify for the lifetime learning credit.
However on page 12 ch 2 Pub 970 2010 Example 2 seems to contradict the above instructions. I was told if in gaduate school you can not take AOC for those qualified expenses.

"Student starts college in fall 2006 and takes hope credit in 2006 and 2007 in 2008 and 2009 he takes lifetime learning credit in 2010 he finishes undergradute degree and starts graduate school fall 2010 can student take AOC for qualified expenses for spring and fall semester?"

I had to read this three times before I sorted out what was meant. There's a reason they invented punctuation; avoiding run-on sentences promotes undertanding.

Your student has used up his AOC and is eligible only for LLC.

[commentator]

By the end of 2009 the student in Morris's example has not received 4 yours of academic credit. Therefore the student is still eligible for the AOC in 2010.

Because the student did qualified undergrad work in 2010, all the otherwise AOC qualified costs get counted in computing the credit whether expended for UG or grad level study.

[morrisliberty]

hello,

forgive my sentence structure ,i will attempt to be clearer in the future. The student receives a 1098 T from school marked as graduate school student . on my worksheet you have five options 1year, 2 yr, 3yr, 4yr, and 5+ years I always select 5+years when I have a graduate student and therefore the computer says I cannot use AOC. But based on the publication's Example 2 you can have qualified expenses for graduate school and qualify for the AOC. What question should I ask to clarify if a graduate student can take AOC or lifetime learning credit for qualified education expenses?

[nancy65]

Mar 21, 2011 15:14:29 GMT -5 @commentator said:

By the end of 2009 the student in Morris's example has not received 4 yours of academic credit. Therefore the student is still eligible for the AOC in 2010.

Because the student did qualified undergrad work in 2010, all the otherwise AOC qualified costs get counted in computing the credit whether expended for UG or grad level study.

I don't think so. Student took Hope Credit in 2006 and 2007. Student took AOC in 2008 and 2009. That is four tax years; true it's not four academic years, but the credit is based on tax years.

Excerpt from Pub 970:

"Who Is an Eligible Student
To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. This is a student who meets all of the following requirements.

The student did not have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. This includes any tax year(s) in which you claimed the Hope credit for the same student."

Four tax years are up at the end of 2009.

[nancy65]

Mar 21, 2011 16:23:22 GMT -5 morrisliberty said:

hello,

forgive my sentence structure ,i will attempt to be clearer in the future. The student receives a 1098 T from school marked as graduate school student . on my worksheet you have five options 1year, 2 yr, 3yr, 4yr, and 5+ years I always select 5+years when I have a graduate student and therefore the computer says I cannot use AOC. But based on the publication's Example 2 you can have qualified expenses for graduate school and qualify for the AOC. What question should I ask to clarify if a graduate student can take AOC or lifetime learning credit for qualified education expenses?

The student in example 2 had not taken Hope or American Opportunity Credit in any prior year.

For that student, I think you would use 4 year, not 5+.

[commentator]

Referring to Publication 970, on page 10:
"Completion of first 4 years. A student who was awarded 4 years of academic credit for postsecondary work completed before 2010 has completed the first 4 years of postsecondary education. This student generally would not be an eligible student for purposes of the American opportunity credit."

From this I infer that a student who has not completed four years of postsecondary education prior to 2010 is an eligible student for purposes of the AOC in tax year 2010.

Aware that IRS publications can be in error, I referred to the regulations. Reg. §1.25A-3(d)(1)(iii) defines who is eligible for the 2 year Hope credit by stating:

"(iii)Year of study requirement.— As of the beginning of the taxable year, the student has not completed the first two years of postsecondary education at an eligible educational institution. Whether a student has completed the first two years of postsecondary education at an eligible educational institution as of the beginning of a taxable year is determined based on whether the institution in which the student is enrolled in a degree program (as described in paragraph (d)(1)(i) of this section) awards the student two years of academic credit at that institution for postsecondary course work completed by the student prior to the beginning of the taxable year. Any academic credit awarded by the eligible educational institution solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed two years of postsecondary education; ..."

The authors of Publication 970 have clearly defined four years of study in the same manner as the regulation defines 2 years of study. My interpretation and that of Publication 970 is the same as the interpretation of the editors of the CCH tax service.

[nancy65]

Quote from US Treasury Regulations:

Sec. 1.25A-3 Hope Scholarship Credit
--------------------------------------------------------------------------------

(a) Amount of the credit—(1) In general. Subject to the phaseout of the education tax credit described in §1.25A–1(c), the Hope Scholarship Credit amount is the total of—

(i) 100 percent of the first $1,000 of qualified tuition and related expenses paid during the taxable year for education furnished to an eligible student (as defined in paragraph (d) of this section) who is the taxpayer, the taxpayer's spouse, or any claimed dependent during any academic period beginning in the taxable year (or treated as beginning in the taxable year, see §1.25A–5(e)(2)); plus

(ii) 50 percent of the next $1,000 of such expenses paid with respect to that student.

(2) Maximum credit. For taxable years beginning before 2002, the maximum Hope Scholarship Credit allowed for each eligible student is $1,500. For taxable years beginning after 2001, the amounts used in paragraph (a)(1) of this section to determine the maximum credit will be increased for inflation occurring after 2000 in accordance with section 1(f)(3). If any amount adjusted under this paragraph (a)(2) is not a multiple of $100, the amount will be rounded to the next lowest multiple of $100.

(b) Per student credit—(1) In general. A Hope Scholarship Credit may be claimed for the qualified tuition and related expenses of each eligible student (as defined in paragraph (d) of this section).

(2) Example. The following example illustrates the rule of this paragraph (b). In the example, assume that all the requirements to claim an education tax credit are met. The example is as follows:

Example. In 1999, Taxpayer A has two dependents, B and C, both of whom are eligible students. Taxpayer A pays $1,600 in qualified tuition and related expenses for dependent B to attend a community college. Taxpayer A pays $5,000 in qualified tuition and related expenses for dependent C to attend University X. Taxpayer A may claim a Hope Scholarship Credit of $1,300 ($1,000 + (.50 × $600)) for dependent B, and the maximum $1,500 Hope Scholarship Credit for dependent C, for a total Hope Scholarship Credit of $2,800.

(c) Credit allowed for only two taxable years. For each eligible student, the Hope Scholarship Credit may be claimed for no more than two taxable years.

[commentator]

The taxpayer in the OP's scenario took the Hope credit in two taxable years. The AOC is available in four taxable years less any years in which the Hope credit was taken. The taxpayer in the OP's scenario is clearly eligible to take the AOC in 2010.

If you have a relevant citation that refutes my conclusion I will be glad to see it.

[nancy65]

Mar 20, 2011 21:47:27 GMT -5 morrisliberty said:

Student starts college in fall 2006 and takes hope credit in 2006 and 2007 in 2008 and 2009 he takes lifetime learning credit.

OK, boy is my face red. I was reading this as though he had taken AOC in 2008 & 2009, rather than LLC. My only excuse--lame as it is--is that I was focused on trying to follow the sense of the sentence. Yes I do agree that you are right, now that I have straightened out the facts as given, and not as I misinterpreted.

[commentator]

As one who has a strong tendency to stop reading too soon, I can identify. My face has been red more than once.