Tuesday, November 24, 2009


Mary O’Keefe, a tax professor and author of the BED BUFFALOES IN MY TAX CODE blog, is keeping me honest.

Mary has brought to my attention an excellent IRS 2-page comparison of the American Opportunity and Lifetime Learning education tax credits. Click here to download.

Under the heading “Who Can Claim a Dependent’s Expenses?” this IRS tool confirms what I said in my post –

If the taxpayer does not claim the exemption on the tax return the dependent can claim the credit.”

However it points out a what Mary calls “bed buffalo” in a footnote –

None of the credit is refundable if the taxpayer claiming the credit is a child (a) who is under age 18 (or a student who is at least age 18 and under 24 and whose earned income does not exceed one-half of his or her own support); (b) who has at least one living parent, and; (c) who does not file a return.”

So while James in my post’s example can claim the credit on his tax return, none of the credit is refundable. This means that James’ tax liability must be at least $2,500 (and, of course, the tuition and other costs used to determine the credit must be at least $4,000) to take full advantage of the credit.

I stand corrected.

A special “thank you” to Mary for keeping me honest!

1 comment:

Anonymous said...

My wife and I were subject to the AMT, in 2009 so we elected not to claim our 20 year old college student as a dependent. Our son could not claim a personal exemption for himself.

My son had a tax due of $2,600 before the American Opportunity Credit, and $100 after the $2,000 credit.

The IRS sent a "notice" letter to my son asserting he could not claim the AOC. He paid the tax, and later filed a Form 1040X, to claim a refund of this overpaid tax. The IRS disallowed the refund clan, asserting, again, that if the student did not claim a personal exemption for himself ( which he can not do- he a student under age 23).

I call the IRS phone number on the " rejection letter", and the IRS finally agreed that my son was entitled to the AOC, and they will issue my son a check for $2,000'

key: don't give up on this credit if the IRS disallowed it the first or second time,.

Hope this bring you $$$$!