Education
Credits

Claiming American Opportunity Credit (AOC)

Instructions for American Opportunity Credit Spreadsheet

The Education Spreadsheet is available for download as an Excel file at the following link, or as a web-based calculator below. 

Education Spreadsheet 2017 (Excel spreadsheet)

American Opportunity Credit (AOC) and Scholarship Income Worksheet

Line Description Label Amount
1 Total tuition, eligible fees and books purchased directly from the school (Tuition/Books/Fees)
2 Total other required books (purchased from other sources) and required supplies (Addtl - Books)
3 Add lines 1 & 2 for total Qualified Education Expenses (QEE) (QEE)
4 Total restricted scholarshps (MAP, VA, etc.) *
5 Subtract Line 4 from Line 3 for QEE available for AOC on tax return and reduction to Scholarship Income.
If Line 4 is GT (>) Line 3, enter the excess amount on Line 8.
(Line 3 - Line 4)
6 Enter amount above (from Line 5) and to AOC but not more than $4,000. Enter on Form 8863 Line 27. ** Amount to Claim for AOC
7 Enter excess of QEE over amount used for AOC (Subtract Line 6 from Line 5). Excess QEE After AOC
8 Excess restricted scholarship from Line 5. Only if Line 4 GT Line 3.
9 Total of unrestricted scholarships/grants (Pell, etc.)
10 Add Lines 8 & 9.
11 Subract Line 7 from Line 10, an amount less than zero equal zero.
12 Restricted scholarship/grant funds earmarked for nonqualified expenses such as room and board, etc.
13 Add Lines 11 & 12 for amount of scholarship income. Enter on Student's Return, 1040, Line 7. Scholarship Income
Enter into FAFSA Question 44 line d to exclude scholarship income from AGI and aid eligibility.
Kiddie Tax: If scholarship income and/or other unearned income equals or exceeds $2100 and earned income is less than half of support and the student is under age 24 and the student is required to file a return,Form 8615 needs to be completed. Form 8615 is out of scope for CEP preparers.
* Do not include restricted scholarships/grants for nonqualified educational expenses such as room and board. When present, these amounts are always classified as scholarship income unless a Veterans Affairs (VA) benefit. Enter on Line 12 above for inclusion with other possible scholarship income. Basic Housing Allowance (BHA) and other VA benefits are never taxable and not included on Line 12. Excess Va tuition, etc. benefits are also never taxable.
** The procedure is more complex when scholarship conversion to income is being used to claim the credit and there is less than $1500 of tax liability and the taxpayer is not the student. Claim $2000 per student or an amount of AOC (limit $4000) per student that will result in the nonrefundable portion eliminating all tax on Line 63 of the return, either singly or in combination with other student dependents.
When the tax on Line 63 of the return is $1200 or less, always claim the first $2000 of the AOC credit per student but only claim the remaining $2000 of the credit to the degree that it does not result in an increase in federal tax on the return of any student dependent or trigger Kiddie Tax.
When the taxpayer is the student and eligible for the refundable AOC, take the full amount possible up to $4000. For a list of questions to determine if a student under age 24 would qualify for the refundable AOC, refer to IRS Publication 4012, page J-9. Scholarship income, except for services that generate a W-2, is classed as unearned income for this standard. The vast majority of undergraduate scholarships are awarded simply on the basis of merit or need and would be regarded as unearned income when these generate scholarship income.
When the taxpayer is the student and not eligible for the refundable AOC, claim only the amount for AOC that will eliminate any tax on Line 47,1040. This occurs when a qualifying child/student claims a personal exemption but less than half of her support comes from earned income or when her parent(s) could claim her as a dependent but have declined to do so. In both these situations, the student may only claim the nonrefundable AOC. This is uncommon.
The Federal Pell Grant is a federally-funded grant awarded by the U.S. Department of Education.
The Monetary Award Program (MAP) grants can be applied only toward tuition and mandatory fees. MAP grants cannot be used for items such as books, travel or housing. The MAP Grant is a state-funded grant awarded by the Illinois Student Aid Commission.
If preparing the parent's return and using scholarship funds to take the AOC credit we must also prepare or have a copy of the student's return showing the scholarship funds as income on Line 7 on the student's tax return.

Tax Implications of Student Status

Questions have been raised about the various definitions of a student and when they apply.

HALF-TIME

CORRECTION TO YOU CAN DO IT! GUIDE:

American Opportunity Credit: The “Benefits Related to Education” discussion on page 49 of 2018’s “You Can Do It!” guide incorrectly indicates that you must be a Full-time undergraduate in a degree program to qualify for the American Opportunity Credit (AOC). The correct requirement is that you must be enrolled at least half-time for at least one academic period beginning during the tax year (or the first three months of the following tax year if the expenses were paid in the tax year). Box 8 of Form 1098T would be checked if the student met the “at least half-time” requirement for the AOC.

FULL-TIME

The half-time definition should not be confused with the use of the full-time student definition of an individual 19 to under 24 that is used for a number of other tax preparation purposes such as whether the student is considered a Qualifying Child (QC) for a taxpayer’s Dependency Exemption, Earned Income Tax Credit, and/or Head of Household filing status. That definition includes the language “ You were a full-time student during some part of each of any 5 calendar months of the year...” (note that the five months do not have to be consecutive)

In other situations, the full-time student definition applies to the student when you answer the question “whether you can be claimed (or are claimed) as a dependent (QC or QR)”, whether you qualify for the refundable part of the American Opportunity Credit, and/or whether you qualify for the retirement “Saver’s Credit.” (IRS Publications such as 17, 501, 970, and/or 4012 should be referred to for more complete explanations)