1098-T and the American Opportunity Tax Credit AOTC

By | February 19, 2015

What information do you need to know in order to claim the American Opportunity Credit or AOTC in 2015? Census data shows that in the last 10 years, college enrollment has gone up to 20 million? So, what does that mean? Lots of potential, eligible students might claim American Opportunity Tax Credit. There are nearly 10 million claims, returns that had American Opportunity Tax Credit on it for tax year 2012, so a lot of people are taking advantage of it. This can provide many benefits for higher education.


1098-T and the American Opportunity Tax Credit AOTC

Form 1098-T, Tuition Statement is very important when claiming the AOTIC. Educational institutions are required to give them to students and a copy to IRS. But remember, the form is informational only. It only shows that the student may be eligible for the credit. The 1098- T is the starting point, but – and we’ll talk about it a lot more in a minute – you have to go much further than that.

In tax year ’11, 70 percent of the claims had a Form 1098-T associated with it that IRS had on file. And then in tax year ’12, that percentage went up to 78 percent, so that’s good because we think that shows that things are more accurate on the returns. And what does it also tell you? IRS is checking.


Who is Eligible for the American Opportunity Tax Credit AOTC in 2015?

Who is a qualifying student for the American Opportunity Tax Credit? AOTC is for post-secondary education, generally meaning colleges, universities, and vocational schools. Eligible schools are any post-secondary educational institution that is eligible to participate in a student aid program administered by the U.S. Department of Education. The student must attend at least half-time for at least one academic period beginning in the tax year. The easiest way to find out if the student is at least half-time is to check the student’s Form 1098-T, Tuition Statement.


Reviewing Form 1098-T

The student must not have completed the first four years of postsecondary education – generally, the freshman, sophomore, junior, and senior years of college. Again, check the Form 1098-T. But, ask when the student started graduate school. If the student was an undergrad for the first part of the year, he or she may still qualify. The student cannot claim the AOTC or the former Hope Credit for more than four tax years. You’ll need to ask about this if your client is not a long-time client. Don’t forget to ask those students who may qualify, but have taken a long break between finishing their degree. And last, the student must not have a felony drug conviction at the end of the tax year.


1098-T and the American Opportunity Tax Credit AOTC

Students can’t claim any other education benefit for the same tax year for the same student and the same expense. For example, you can’t take a deduction for a business or employee expense and the AOTC. Another example: you can’t take an education credit at the same time you take a tuition and fees deduction or another credit for the same student. Everything that’s not taxable isn’t considered double-dipping for the education credit. If the expenses are paid from a gift, it’s a win-win for the student. It’s not taxable to the student but can qualify for an education benefit. And expenses paid with money that was inherited, even if the inheritance was not taxable, it can qualify.


What Expenses Eligible for American Opportunity Tax Credit?

Basically, all the expenses you are required to pay to take the course, or courses, are eligible for AOTC. This includes tuition, student activity fees that are a required condition of enrollment or of attendance, of course, books and materials necessary to take the course or courses. The books, supplies, or equipment must be necessary, though. For example, a computer: the expense may qualify. It depends on the facts. If it’s necessary because it’s an integral part of the course or is needed as a condition of enrollment or attendance, it’s an expense you can include for AOTC.


Expenses that don’t Qualify for AOTC?

Room and board; insurance; medical expenses – including the student health fees – transportation; similar personal, living, or family expenses; expenses for sports, such as games, hobbies, or non-credit courses, except when the course or activity is part of the student’s degree program.  Education credits is one area that your client doesn’t necessarily have to pay the expenses out of their own pocket to claim. The expenses can be paid by you or your spouse, if you file a joint return, or the expenses paid by student are considered as paid by your client if the client claims the student as a dependent. Also, a third party can pay the expenses. It could be a student loan. It could be that grandma pays. It might even be a civic organization that pays for your student.