Why no American Opportunity Credit?

[SensibleandHourly]

Hello everyone, 

So, client had a scholarship last year that was more than the payments made; (7513/4247)and still qualified for an AOC credit of $1000. She did her returns with one of our competitors last year. In 2023, she earned another scholarship of $7,888 again tuition of $5,764, so creating taxable income of the difference and not allowing the AOC credit. Did something change, or did I not check a box? I remember in basic, we had to remember to hit the optimizer button, but not sure if there is something similar in Professional? Thank you for any insight anyone can provide! 

Have a great night, 

Dawn 

[Just-Lisa-Now-]

You need to scroll down the student expenses worksheet and input the other expenses they had that they used the scholarship for, so that you can free up some tuition to compute the credit on.

[TaxGuyBill]

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@SensibleandHourly wrote:

still qualified for an AOC credit of $1000. She did her returns with one of our competitors last year.

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Just the refundable portion?  That is waiving red flags in my mind.

• Is this a full-time student under age 24?
• Is at least one parent alive?
• CAN her parents claim her as a dependent?
• ARE the parents actually claiming her as a dependent?
• Is she providing over half of her own support?
• Is her EARNED income over half of her support?
• Is she filing as MFJ?

[SensibleandHourly]

Hello TaxGuyBill, 

She was a full-time student under the age of 24, with one parent still alive. She provided over half of her own support, neither parent can claim her or did claim her as a dependent. Her earned income is over half of her support, and she is not MFJ. 

Just a hustling, young college student with a scholarship. 😉 

[TaxGuyBill]

If she had the same answers for last year, it seems she should have had a credit larger than $1000.

*IF* $5764 is the correct amount of qualified expenses and *IF* the scholarships are allowed to be used for non-tuition (such as a Pell Grant), I would go to the Student Info worksheet, go to Part V, and enter $6124 on line 4 (that is the amount of taxable scholarships plus $4000).  That will allocate $4000 to the American Opportunity Credit (assuming she otherwise qualifies).  Maybe there is a better way to do it, but that is how I make it work.

In some cases it may be better to only allocate $2000 to the American Opportunity Credit (on line 4, enter the taxable scholarships plus $2000), but without knowing all of her information it is difficult to guess which is best.

[SensibleandHourly]

Thank you, Lisa, I did check with her, and she didn't have any other expenses. At least what she paid for. Her father paid for a laptop, and the money has just been sitting in the bank. In that case, do you think she simply doesn't qualify now?

Now Mom wants to come in and review the return. Sigh.

[SensibleandHourly]

Thank you for responding. Her 1098 does not specify the type of scholarship. Do they normally state that it is a Pell Grant when it is? 

[taxiowa · Accepted solution]

It really doesn't matter if she had other qualified expenses or not if she is willing to report that she used the scholarship money for something other than tuition.  She could use it for parties and spa treatments.  The question is whether as Bill stated was it a Pell grant or like scholarship which can be used for something other than tuition.  That info does not have to be reported on the 1098-T.  but if you get student to go into her portal a print out a 2023 transcript showing activity on her account it will show the types of scholarships.  The a number can be entered where Bill pointed out.

[SensibleandHourly]

Thank you!! She did say that she saved the money that was extra and still has it actually. But I didn't know they could find that out through their online portal. Thank you for that detail. I sure appreciate this forum. 

[SensibleandHourly]

Bingo!  Approx half of the scholarship dollars were Pell Grants. Thank you for explaining how she could find those details in her student account. Now to get those numbers updated in her profile.