Can someone start college in year 1, not take the AOC, but take it in yr 5 if didn't take in the 4 years previous nor finished the senior year?

[TaxMonkey · Accepted solution]

Yes

[rbynaker]

I agree.  If you can't get a full credit in year 1 then I often suggest that clients forego the credit until later.

[Ernie]

This from the IRS

Answer: You can claim the American opportunity tax credit (AOTC), if: You pay some or all qualified tuition and related expenses for the first 4 years of postsecondary education at an eligible educational institution. You paid qualified expenses for an eligible student (defined below)

https://www.irs.gov/faqs/childcare-credit-other-credits/education-credits

[TaxMonkey]

The restriction you are referring to is found in IRC 25A(b)(2)(C) and Treas reg 1.25A-3(d)(iii) makes it clear that they are referring to academic credit years, not calendar years.

(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.

https://www.law.cornell.edu/cfr/text/26/1.25A-3

[Ernie]

Never read it that way but I see where I was wrong!  Thanks guys!

[Ernie]

I say no.  If you choose to not take them you still lose them.

If someone went to school for 4 years before the credits were available they only get the Lifetime Learning Credits.

Dusty Ernie

[rbynaker]

If you changed the wording to "If someone went to school for 4 years and obtained a degree before the credits were available . . ." then I would agree with you.

There are several limitations in play.  The student must be working on an undergraduate degree.  The credit cannot be taken in more than 4 tax years.  Most undergrads are in school for at least 5 tax years and usually you take 1-4, but you can also take 2-5.

Lots of factors in terms of planning, I generally say grab it when you can.  So if you can max out the $2K of free money, take it even if you can't get all the way up to $2,500.  If you spent $600 on a class at community college though, rather than spend one of your 4 tokens to get $600, you might want to wait until year 5 when you have a full time load and can get $2K-2.5K.

Rick

[Terry53029]

Dusty, I think you must have misinterpreted the four year rule. From 8863 instructions  "Line 25 Check “Yes” if the student completed the first 4 years of postsecondary education before 2018. Otherwise, check “No.” A student has completed the first 4 years of postsecondary education before 2018 if the educational institution has awarded the student 4 years of academic credit at that institution for postsecondary coursework the student completed before 2018. Disregard any academic credit awarded solely on the basis of the student's performance on proficiency examinations"

[Ernie]

Rick:  The rules state

An eligible student is a student who:

    Was enrolled in a program leading to a degree, certificate or other recognized postsecondary educational credential for at least one academic period beginning in the tax year.
    Carried at least half the normal full-time workload for the course of study.
    Didn't make an election to claim the Hope or AOTC (or a combination of both) for any 4 earlier tax years.
    Hasn't completed the first 4 years of postsecondary education before the beginning of the tax year.
    Doesn't have a federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

So if a student went to school in year 1 in the fall they most likely meet all requirements unless they did not take at least a half time workload.  So that counts as year 1 if they take the credit or not.

Terry:

Click on the link and read the rules.

Dusty Ernie

[rbynaker]

See TaxMonkey's cite above.  "4 years of postsecondary education" are academic years, not calendar years.  Freshman, Sophomore, Junior and Senior.  If you have not completed the Senior year before 1/1/xx then this criteria is met.  (You still have the other ones, so often the "didn't claim AOTC for any 4 earlier tax years" becomes the limiting factor, even for Seniors.)

[Terry53029]

Dusty the instruction for 8863 says  A student has completed the first 4 years of postsecondary education before 2018 if the educational institution has awarded the student 4 years of academic credit at that institution for postsecondary coursework the student completed before 2018.