Who claims the AOTC when dependent student has federal loans for qualified expenses?

The AOTC can be confusing with dependents and student loans! Here's what you need to know: Since your daughter is your dependent, YOU are the only one who can claim the AOTC - regardless of whose name the student loans are in. The key factor is the dependency status, not who technically paid the expenses. Even though the federal loans are in your daughter's name, for tax purposes, the IRS treats this as if your daughter paid the expenses with the loan funds. Since she's your dependent, those expenses then "transfer" to you for AOTC purposes. The income limitations for the AOTC are applied before you even fill out Form 8863. If your modified adjusted gross income (MAGI) is too high, you can't claim the credit at all. For 2025, the AOTC begins to phase out at $90,000 for single filers and $180,000 for married filing jointly, and completely phases out at $100,000/$200,000. That's why you don't see it calculated on the form - if you're over the limit, you simply can't claim it.

I found an amazing tool that helped me navigate a similar AOTC situation with my son last year. Check out https://taxr.ai - it analyzes all your tax documents (including those confusing 1098-Ts) and tells you exactly who can claim education credits. I uploaded my son's 1098-T and my tax info, and it immediately showed that I could claim the AOTC even though he had loans in his name that paid part of the tuition. The system explained exactly how the dependency rules affected the credit and saved me from making a $2,500 mistake! They also have tax experts who can answer follow-up questions if anything is still unclear.

I just wanted to update everyone - I tried the taxr.ai service that was mentioned earlier for my twins' college expenses situation. It was honestly way better than I expected! The system analyzed both of their 1098-Ts separately and showed me exactly how to handle the AOTC for each kid. Turns out I was making a mistake that would have cost me over $1,800! The tool explained that even though my daughter paid some expenses with her own summer job money, I could still claim the AOTC for her since she's my dependent. Same with my son's loans - didn't matter that they were in his name. The tool even created a little report explaining the rules that I can keep with my tax records in case of an audit. Definitely worth checking out if you're confused about education credits!

Anyone else having trouble reaching the IRS to ask about AOTC questions? I've been trying for WEEKS to get clarification on this exact situation, and I can never get through. Always "high call volume" and they hang up on me. So frustrating when you're trying to do your taxes correctly! I finally found a service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 20 minutes after I'd been trying for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent confirmed everything that was said above - as the parent claiming a dependent, you get the AOTC regardless of whose name is on the student loans.

I need to eat my words from yesterday. After posting my skeptical comment, I decided to try that Claimyr service out of desperation since I needed clarification on the AOTC for my nephew who lives with me. I figured it wouldn't work, but I've been trying to reach the IRS for almost a month with no luck. Well, I'm shocked to report that I got connected to an IRS representative in about 15 minutes! The agent confirmed that since I claim my nephew as a dependent, I'm the only one who can claim the AOTC, even though some of his college was paid with loans in his name. She also explained exactly how to handle the scholarship portion on Form 8863. I've literally never been able to get through to the IRS before in my life, so this was kind of amazing. Sorry for being such a doubter!

Something else to consider with AOTC: make sure you're tracking all qualified education expenses! Beyond tuition, you can include required books, supplies, and equipment for enrollment. My tax guy says people leave money on the table every year by not including all eligible expenses. Keep those receipts for everything your daughter needed for her courses!

Is nobody going to mention that the AOTC can only be claimed for 4 tax years per student? I made this mistake with my older kid and tried to claim it for a 5th year when he took longer to graduate. Got a nasty letter from the IRS and had to pay it back plus interest.

Great question about the AOTC! You're absolutely right that as the parent claiming your daughter as a dependent, you get to claim the AOTC on your return - not her. The fact that the federal loans are in her name doesn't change this at all. Regarding the income limitations you mentioned - they actually ARE factored into the AOTC, but you're right that it's not super obvious on Form 8863. The form assumes you've already determined you're eligible based on income before you even start filling it out. For 2025, the AOTC phases out between $90,000-$100,000 for single filers and $180,000-$200,000 for married filing jointly. If your MAGI is above these thresholds, you can't claim the AOTC at all. One thing to double-check: when calculating your qualified expenses, make sure you reduce the total by any scholarships your daughter received. The IRS requires you to subtract tax-free educational assistance (like scholarships and grants) from the total qualified expenses before calculating the credit. So if her tuition was $10,000, but she got $3,000 in scholarships, you can only use $7,000 of expenses for the AOTC calculation. The good news is that you're in the perfect position to maximize this credit since you have higher income and can use both the refundable and non-refundable portions!