1098-T/529/AOTC Question

[boglesmkcents]

Around December 28, I did a practice run on my 2012 taxes and realized that since I'd paid all of my kiddo's tuition (about $21K) using her 529, I may not be able to take the American Opportunity Tuition Credit. I had paid her room and board by check, but I do not think R&B qualifies. If it matters, about $16K of the 529 funds were against the "basis", the remaining $5K was appreciated gains. Her 1098-T only shows that I was billed for the 2012 tuition of course.

So I quickly wrote a $4000 check (to max out the AOTC) against her Spring, 2013 tuition bill that was showing online, and mailed it ~December 30. The check cleared around January 10. I believe the $4000 paid qualifies me to take the full AOTC since I mailed it in 2012, but I am not sure how to reflect this on my taxes since the 1098-T does not reflect this amount. Turbo Tax is letting me take the deduction as is, because it apparently does not check carefully whether a 529/QTP was used, but I am concerned that an audit would raise this question, and I want to be proactive about filling out my return correctly.

I have another question but I'll stop here for now...any advice appreciated!

[kaneohe]

You are entitled to use the 1Q2013 expenses paid in 4Q2012 from funds outside the 529 plan as a 2012 expense.
See p. G4 here http://www.irs.gov/pub/irs-pdf/p4012.pdf
You just have to be sure that you don't double-dip by claiming it for 2013 just because it's on the 2013 1098-T.
This must be a common issue so I would think a copy of your check w/ 2012 date and bank statement showing clear
date in early Jan would by sufficient proof. Perhaps the school will also provide you a receipt.

I don't know how TT works. Perhaps the 1099-Q from the 529 distribution will neutralize the 1098-T payment leaving you with no credit so you'd have to find a way to input the 1Q2013 payment to get the AOTC.

[Calm Man]

I have an interesting situation for my daughter. She now works, having graduated in June 2012. Her 1st quarter 2012 tuition bill was paid by me in Dec 2011. She can qualify for the lifetime learning credit fro 2012. The school says that since the bill was in Dec 2011, they are not going to issue a 1098T. Turbotax indeed will allow it without the 1098T. Her income for the half year she worked in 2012 is relatively low so the 2K credit will wipe out the taxes. Thanks to the link posted by kan, I cut out the following related to the Lifetime Learning Credit:

What Expenses Qualify?
• Expenses paid for an academic period starting in 2012 or the first 3 months of 2013

And it also indicates that if I do not claim her as a dependent (which I am not) that SHE would be the one to take the deduction.

So this seems solid and it would be foolish for her not to take it, right? Am I missing something?

[jared]

I have an interesting situation for my daughter. She now works, having graduated in June 2012. Her 1st quarter 2012 tuition bill was paid by me in Dec 2011. She can qualify for the lifetime learning credit fro 2012.

Please tell us how she qualifies for the credit if the tuition was paid in 2011.

The school says that since the bill was in Dec 2011, they are not going to issue a 1098T. Turbotax indeed will allow it without the 1098T.

I'm sure Turbotax will let you do many things that aren't proper if you don't know what you're doing.

Her income for the half year she worked in 2012 is relatively low so the 2K credit will wipe out the taxes. I figure the chance of her getting audited is low and even if she is, this seems like a valid credit. Any opinion?

Opinions won't matter. Have you read the requirements for education credits? Taking a position based on the audit lottery isn't advisable.

[Calm Man]

Jared, I posted what I cut out from the instructions. It says expenses paid FOR 2012. Although I paid in Dec 2011 (wish I wasn't such an overachiever), we have the bill being for Spring semester 2012. Does this make sense?

[jared]

Around December 28, I did a practice run on my 2012 taxes and realized that since I'd paid all of my kiddo's tuition (about $21K) using her 529, I may not be able to take the American Opportunity Tuition Credit. I had paid her room and board by check, but I do not think R&B qualifies. If it matters, about $16K of the 529 funds were against the "basis", the remaining $5K was appreciated gains. Her 1098-T only shows that I was billed for the 2012 tuition of course.

So I quickly wrote a $4000 check (to max out the AOTC) against her Spring, 2013 tuition bill that was showing online, and mailed it ~December 30. The check cleared around January 10. I believe the $4000 paid qualifies me to take the full AOTC since I mailed it in 2012, but I am not sure how to reflect this on my taxes since the 1098-T does not reflect this amount. Turbo Tax is letting me take the deduction as is, because it apparently does not check carefully whether a 529/QTP was used, but I am concerned that an audit would raise this question, and I want to be proactive about filling out my return correctly.

I have another question but I'll stop here for now...any advice appreciated!

Actually, you didn't need to make the $4,000 payment to qualify for the AOTC. You could've simply claimed the AOTC, which would reduce the qualified higher education expenses available for 529 distributions by $4,000.

I've written about this in a few different threads:

viewtopic.php?f=2&t=109264&p=1588672#p1588070
viewtopic.php?f=10&t=98561&p=1426287#p1426287

[jared]

Jared, I posted what I cut out from the instructions. It says expenses paid FOR 2012. Although I paid in Dec 2011 (wish I wasn't such an overachiever), we have the bill being for Spring semester 2012. Does this make sense?

No, it still doesn't make sense. If the tuition was paid 2011, then the credit can only be claimed in 2011.

[Calm Man]

Post edited after research prompted by Jared (thanks, well not really, Jared.)

Jared, I so respect your posts. "But" let me paste this again from the instructions:
What Expenses Qualify?
• Expenses paid for an academic period starting in 2012 or the first 3 months of 2013
I see the word paid FOR 2012, not paid IN 2012. (And I now cannot find where I got this from)

But as always the rules giveth and tacketh: Here is from the 2012 instructions on the Form:
You cannot use any amount you paid in 2011 or 2013 to
figure the qualified education expenses you use to
figure your 2012 education credit(s).

So I guess I can't.

[kaneohe]

Thanks to the link posted by kan, I cut out the following related to the Lifetime Learning Credit:

What Expenses Qualify?
• Expenses paid for an academic period starting in 2012 or the first 3 months of 2013

And it also indicates that if I do not claim her as a dependent (which I am not) that SHE would be the one to take the deduction.

So this seems solid and it would be foolish for her not to take it, right? Am I missing something?

I don't know if it's an oversight, or even if it's absolutely true, but generally you claim deductions for a tax year only for you paid for something in that year...........so even if it's not explicitly stated on the referenced pages, I think it's still true. You can't double-dip , of course, but assuming that you didn't claim that expense in 2011, could you go back and amend your 2011 return and basically get the same end result?

Realize that IRS publications are designed to be helpful (and understandable ) to the general public but they aren't perfect and aren't the last word..............

[pshonore]

Note to OP. The IRS has identified Education Credits (especially the AOC) as an area where lots of "mistakes" are made. They are getting more scrutiny and thats part of the reason why the IRS is not yet processing them. I would be very careful to make sure the your return matches what is on the 1098T.

[jared]

Jared, I so respect your posts. "But" let me paste this again from the instructions:
What Expenses Qualify?
• Expenses paid for an academic period starting in 2012 or the first 3 months of 2013
I see the word paid FOR 2012, not paid IN 2012. Maybe I am overanalyzing this or am hopelessly pathetic about taxes.

Did you read the rest of the instructions? How about Pub 970? How about IRC 25A? How about Reg 1.25A-5?

I'll bet you a beer that all 4 of those sources mention somewhere that the payment must be made in the year in which the credit is claimed. If not, I'll bet you a 6 pack that at least 3 out of the 4 sources mention it.

[Calm Man]

Jared, I so respect your posts. "But" let me paste this again from the instructions:
What Expenses Qualify?
• Expenses paid for an academic period starting in 2012 or the first 3 months of 2013
I see the word paid FOR 2012, not paid IN 2012. Maybe I am overanalyzing this or am hopelessly pathetic about taxes.

Did you read the rest of the instructions? How about Pub 970? How about IRC 25A? How about Reg 1.25A-5?

I'll bet you a beer that all 4 of those sources mention somewhere that the payment must be made in the year in which the credit is claimed. If not, I'll bet you a 6 pack that at least 3 out of the 4 sources mention it.

I edited the prior post. You win the beer, the 6 pack and everything. Now just tell the daughter that my happy email to her is wrong and I'll buy you 2 sixpacks. It seems quite unfair but that's life. It's her $2000 and my fault so in the next rewrite of my will the amount to charity will be reduced by $2000 and her share will increase by that.

[kaneohe]

Note to OP. The IRS has identified Education Credits (especially the AOC) as an area where lots of "mistakes" are made. They are getting more scrutiny and thats part of the reason why the IRS is not yet processing them. I would be very careful to make sure the your return matches what is on the 1098T.

Are you saying that paid in 2012 actually means received by college in 2012 as compared to paid by taxpayer in 2012?

[kaneohe]

You can't double-dip , of course, but assuming that you didn't claim that expense in 2011, could you go back and amend your 2011 return and basically get the same end result?

[Calm Man]

You can't double-dip , of course, but assuming that you didn't claim that expense in 2011, could you go back and amend your 2011 return and basically get the same end result?

I wish. She earned nothing in 2011 (was in school). I earned too much in 2011 so am phased out. Government wins, we lose I think.

[Calm Man]

Note to OP. The IRS has identified Education Credits (especially the AOC) as an area where lots of "mistakes" are made. They are getting more scrutiny and thats part of the reason why the IRS is not yet processing them. I would be very careful to make sure the your return matches what is on the 1098T.

Are you saying that paid in 2012 actually means received by college in 2012 as compared to paid by taxpayer in 2012?

If lot's of mistakes are made, it would seem that if she made a mistake then the worse that would happen is they would charge the tax if audited. So what? The lack of a 1098T is probably an audit trigger. But this is the first year she will be doing taxes under my tutelage and I think it is probably better to teach her not to mess with the IRS as you really want nothing to do with them.

[Bob's not my name]

Interesting thread. I wrote this article about tax tactics for graduates: http://thefinancebuff.com/how-to-save-4 ... taxes.html

If you see any errors in it I would appreciate knowing.

Critical things to remember:
Pay your last tuition bill after January 1. You can’t get a credit in your graduation year if you didn’t pay for college expenses in that calendar year. Wait until January to pay. Even if your tuition payment is due before January 1, the tax benefit will probably trump the late penalty.

[boglesmkcents]

OP here -- thanks for all the clarifications. I think I am fairly clear on the AOTC now.

However, after further consideration, I think I will take the Lifetime Credit this year. Reason is that my daughter will be a 5 year undergrad, and this year, my income was low enough to qualify for the LLC....in future years, my only chance will probably be the AOTC. I took the AOTC last two years, so I'll do the LLC this year, and then two more years of AOTC when our income is higher. The information I learned here is useful for the LLC or AOTC.

[Bob's not my name]

And in tax year 6 (her graduation year), she can take the LLC, provided she doesn't pay her final tuition bill before Jan 1 and provided her starting salary is under about $130,000.

[kaneohe]

OP here -- thanks for all the clarifications. I think I am fairly clear on the AOTC now.

However, after further consideration, I think I will take the Lifetime Credit this year. Reason is that my daughter will be a 5 year undergrad, and this year, my income was low enough to qualify for the LLC....in future years, my only chance will probably be the AOTC. I took the AOTC last two years, so I'll do the LLC this year, and then two more years of AOTC when our income is higher. The information I learned here is useful for the LLC or AOTC.

Can you do that? My reading of p. G3 here http://www.irs.gov/pub/irs-pdf/p4012.pdf
suggests that you can do AOTC for the first 4 yrs of college, not that you can do 4 yrs of AOTC which is what you are suggesting.

[boglesmkcents]

My reading was that you can take AOTC 4 times,and until a degree is earned. This is the sense I got from TurboTax, anyway.

[kaneohe]

American Opportunity Credit
Available for first 4 years of post secondary education, cannot be claimed more than 4 tax years
http://www.irs.gov/pub/irs-pdf/p4012.pdf p. G-3

[boglesmkcents]

I was going by the critical place in TurboTax where the program asks "Let us know if <student name> has earned 4 years worth of college level credit as of 1/1/2012" -- their explanation states "Undergraduate 5th and 6th year students should answer NO if they did not complete their degree or earn 4 years worth of of college level credit before 1/1/2012"

[kaneohe]

Interesting.......I can see some flexibility bc 4 academic years usually covers parts of 5 calendar yrs but 6?
Why not 8 or 10 if part-time?

[jared]

Can you do that? My reading of p. G3 here http://www.irs.gov/pub/irs-pdf/p4012.pdf
suggests that you can do AOTC for the first 4 yrs of college, not that you can do 4 yrs of AOTC which is what you are suggesting.

My reading was that you can take AOTC 4 times,and until a degree is earned. This is the sense I got from TurboTax, anyway.

It's not quite as simple as either of you describe. The determining factor for the "first 4 years of college" rule is whether or not the institution awards the student with 4 years of academic credit (excluding credit based on proficiency exams) at that institution prior to the beginning of that tax year.

Yes, the credit can be claimed for only 4 taxable years. However, the student may actually be in school for a period that lasts longer than 4 years and still be eligible for the credit.

[kaneohe]

I agree that it can be interpreted that way.....means years in terms of credits, not time but still has a restriction on # of tax years.

[jared]

I agree that it can be interpreted that way.....means years in terms of credits, not time but still has a restriction on # of tax years.

Yes, a restriction based on the number of tax years claimed. However, there is no restriction on the number of calendar years in school (at least not until the 4 years of acedemic credit are complete at the institution).