Education credits

[MargaretMort]

Clients have 2 kids. #1 graduated in May with degree, has gone on to another University for advanced degree. They can take whichever credit is best for them for tuition for the Jan to May of 2010 term. Am I understanding this correctly? He also has a 1098-T from 2nd University for the fall of 2010 and spring of 2011. I am assuming they can not take that.

#2 has tuition and related expenses amounts, adjustments for a prior tax year and Scholarships and Grants. To be perfectly frank, the Box 2 amount and the Scholarship amount are nearly the same but I would assume you would net them and use whatever works for a credit.

Any and all help will be appreciated. MM

[Pacun]

Clients have 2 kids. #1 graduated in May with degree, has gone on to another University for advanced degree. They can take whichever credit is best for them for tuition for the Jan to May of 2010 term. Am I understanding this correctly? He also has a 1098-T from 2nd University for the fall of 2010 and spring of 2011. I am assuming they can not take that.

#2 has tuition and related expenses amounts, adjustments for a prior tax year and Scholarships and Grants. To be perfectly frank, the Box 2 amount and the Scholarship amount are nearly the same but I would assume you would net them and use whatever works for a credit.

Any and all help will be appreciated. MM

Graduated kid... It depends how much he paid to the old university and how much to the new one. Not having all the info, I will venture and say that he can use the American Oportunity credit using ONLY what he paid to the old university OR he can combine what he paid to both universities and claim the Life Learning credit.

Kid #2, I am assuming again that he is undergraduate and he can use the American Oportunity credit if they paid in addition to the scholarship.

[MargaretMort]

Child #1 paid $2346.66 to first University. For advanced degree at 2nd University, paid $15486 and had scholarship or grants of $14896. I know this would go to Lifetime, seems to me it was better to use Lifetime for the first amount, also.

Child #2 paid $5832 with adjustments made for a prior year of $4792 and Scholarship or grants of $5188.

I haven't dealt with these before. Seems to me that scholarship or grants would be netted against fees paid. Am I right or wrong? And I have no idea what one does with the adjustment for a prior year.

Thanks for any help. I feel like a babe in the woods this year instead of an experienced tax preparer. MM

[Terry D EA]

Only thing that sticks out at me here is kid #1. The AOC can only be used to pursue a bachelors degree or for four tax years. Knowing the status of the AOC taken in earlier years would help with your decision. Most likely though you may end up optimizing between the life long learning credit and the tuition and fees deduction for this one.

Kid # 2 us pretty clear, the AOC should be the better choice. Again optimize between the two credits.

Box is the fees billed or paid which may or may not be the same amount of scholarship in box 6. The difference between the two that the student did not use for his/her education is taxable income that is to be reported on line 7 of the 1040 form with the words Sch. We have a local community college here that issues checks back to students for the portion they don't use towards their tuition. Makes em mad when they have to claim it.

[Pacun]

I would go with the AOC on both cases. I would use ONLY what was paid to the old univeristy on the first kid, including books. Keep in mind that he barely paid anything (if any) to grad University.

Since the AOC has been here only for 1 year and the hope credit was only available for 2 years, I think you will be OK using the AOC for child #1. (which will be his 4th time using it).

There is no question about kid #2, who should use the AOC. It seems that Kid 2 doesn't have much left for the credit but if you transfer any taxable scholarship to line 7, you can use both amounts to calculate the AOC. Also, ask if he stays in campus and find out more about the scholarship.

Remember that 1098-Ts don't have legs. In an audit, they don't have a leg to stand on and therefore you must ask questions such as: How much of your money or your family money did you pay to the University in 2010? Most of the time, they don't remember but they can get on line an get a print out of the bill and payments (keep that for the records). The next question is: Did you or your parent apply or get for a loan in 2010 or 2009? With those pieces of information in hand, you look at the 1098-T and figure out the situation.

[MargaretMort]

I have read and re-read the information that came with the 3 1098-T statements and this is what I think I am supposed to do:

Student 1 has $2346.66 payments for his final semester for his 4 yr. degree, no scholarships, etc. All of this is eligible for whichever credit works best.

Student 1 has $15486 payments for his first year of graduate school and $14896 in scholarships, etc. The $590 difference would be eligible for lifetime credit.

Student 2 has $5832 payments for 2010 school year and $5188 in scholarships, etc. The $644 difference would be eligible for whichever credit works best.

Student 2 has $4791 adjustment made for a prior year qualified charges, etc. No credit was taken in the prior year so that is a moot point.

Is that correct or am I over-thinking the situation?

Any and all help will be much appreciated. MM

[grmy2h]

I have read and re-read the information that came with the 3 1098-T statements and this is what I think I am supposed to do:

Student 1 has $2346.66 payments for his final semester for his 4 yr. degree, no scholarships, etc. All of this is eligible for whichever credit works best.

Student 1 has $15486 payments for his first year of graduate school and $14896 in scholarships, etc. The $590 difference would be eligible for lifetime credit.

Student 2 has $5832 payments for 2010 school year and $5188 in scholarships, etc. The $644 difference would be eligible for whichever credit works best.

Student 2 has $4791 adjustment made for a prior year qualified charges, etc. No credit was taken in the prior year so that is a moot point.

Is that correct or am I over-thinking the situation?

Any and all help will be much appreciated. MM

Student 1 can take one or the other (whichever works out best, but not both.

[Pacun]

I have read and re-read the information that came with the 3 1098-T statements and this is what I think I am supposed to do:

Student 1 has $2346.66 payments for his final semester for his 4 yr. degree, no scholarships, etc. All of this is eligible for whichever credit works best.

Student 1 has $15486 payments for his first year of graduate school and $14896 in scholarships, etc. The $590 difference would be eligible for lifetime credit.

Student 2 has $5832 payments for 2010 school year and $5188 in scholarships, etc. The $644 difference would be eligible for whichever credit works best.

Student 2 has $4791 adjustment made for a prior year qualified charges, etc. No credit was taken in the prior year so that is a moot point.

Is that correct or am I over-thinking the situation?

Any and all help will be much appreciated. MM

Before I continue, I would like to answer this question..."I feel like a babe in the woods this year instead of an experienced tax preparer. MM". We all feel that way every year in certain situations. There is always something new and we will always feel like babies in the woods sooner or later.

Kid 1, use the AOC ONLY. Nothing else. Ignore completely grad school.

Kid 2, There is no question about AOC on the $644.

I feel that if you use those two AO credits you should be fine. File 2010 like that and...

I would research the moot point. If payment of $4,791 was made in 2010 for classes taken in 2009, you could amend one of the two years and get a big AOC refund.

[MargaretMort]

Thank you all. I will check on Student 2 for 2009. I am happy to report I slept much better last night. MM