Dependency Exemption and the American Opportunity Tax Credit
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Dependency Exemption and the American Opportunity Tax Credit

Dependency Exemption and the American Opportunity Tax Credit

A new client came to me this week – husband/wife – filing a joint tax return.  Their son a full time 21 year old student with some earned income but not enough to provide for over one half of his own support. The son meets all the requirements to qualify for the American Opportunity Credit.

The question posed to me was would it be better for the parents to not claim the dependency exemption for their son on their return because their income exceeds the threshold to receive a benefit from the education expenses incurred by the son. And the follow up question was if the son can claim the American Opportunity Credit for the education expenses incurred, would he also qualify for the refundable portion of the credit?

To answer this I referred to the instructions on IRS Form 8863, where I learned a taxpayer who is under age 24 does not qualify for the refundable portion of the American Opportunity Credit if the taxpayer was: Under age 18 at the end of 2011, or Age 18 at the end of 2011 and earned income was less than one-half of required support, or Over age 18 and under age 24 at the end of 2011 and a full-time student and earned income was less than one-half your support. At least one parent was alive at the end of 2011. And for tax year 2011, a joint return is not filed.

The answer then is it is better for the parents to take the son as the dependent as they were in a higher tax bracket. The son would not qualify for the refundable portion of the credit.



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