DIY Disasters: College Kids, Their Parents and the American Opportunity Credit

Image courtesy of user KlausHausmann on
Image courtesy of user KlausHausmann on

DIY Disasters is a semi-irregular series where I chronicle the things that can go wrong when people use DIY software to prepare their tax returns.

Here’s one I dealt with last tax season.


Mom and Dad are my client. They have a college-aged son — let’s call him “Junior” — who went to college full-time and also worked a job. Junior made enough money to where he needed to file a tax return.

Mom and Dad gave me their things to prepare their tax return. Junior went ahead and did his own return using the H&R Block online software.

Mom and Dad made clear to me that they were claiming Junior as a dependent. I asked if Junior got a Form 1098-T for his college tuition, because they could claim the American Opportunity Credit on their tax return.

Mom informed me that Junior had claimed the tuition credits on his own tax return.


What’s the Problem

In general, someone who’s claimed as a dependent on a tax return cannot claim the AOC on their own tax return. There’s an exception for a situation where the parents decide not to claim the dependency exemption. In that case, the dependent can claim the AOC.

In my client’s case, Mom and Dad wanted to claim Junior as a dependent. In fact, they needed his exemption to avoid owing money on their tax return.


I looked at Junior’s tax return. He properly selected that he was being claimed as a dependent on someone else’s tax return. But he improperly claimed the AOC.

One option would be to leave everything as-is. Mom and Dad don’t claim Junior. Junior properly gets the AOC.

But this was a bad option.

Not only did Mom and Dad need the dependency exemption, but they would have gotten the maximum AOC of $2,500.

Junior’s income was so low that his AOC was only about $1,500 — $1,000 less than the maximum.

The Fix

We waited til Junior got his refund (which he got without issue). Then we amended Junior’s return to take the AOC off. Junior had to write a $1,500 check to the IRS.

Then we filed Mom and Dad’s return — on paper, because I believe the e-file would have rejected because it showed AOC for Junior, and the IRS computers would likely have gotten confused and thought someone was double-dipping on the credit. We included a copy of Junior’s amended tax return and an explanation of what happened.

The Moral

I’m a little surprised the Block software didn’t raise alarm bells for Junior when he tried filing his return. Maybe it did and he ignored it. I don’t know.

The real moral is: there are many potholes and landmines when it comes to taxes. DIY is great … if you know what you’re doing.

And Mom and Dad will now be sending me Junior’s W-2s and tuition statements for me to prepare his tax returns for as long as he’s in college.