Why am I not eligible for refundable American opportunity credit in H&R Block? Software says I shouldn't qualify??

Thanks for explaining! But I'm still a bit confused - I thought qualified expenses included things like books and supplies that don't show up on the 1098-T? Shouldn't I be able to claim those expenses even if my tuition was covered by scholarships? Also, could it make a difference that some of my scholarships were merit-based rather than need-based? Does that change how they're counted against my expenses?

You're absolutely right about being able to include books and supplies as qualified expenses even though they don't appear on your 1098-T. This is a common misunderstanding. You can add those costs to your qualified expenses calculation, which might give you some eligible expenses for the AOTC. The type of scholarship (merit vs. need-based) doesn't matter for tax purposes. What matters is whether the scholarship funds were restricted to tuition and fees or whether they could be used for room, board, and other expenses. If any portion of your scholarships could be used for living expenses, you might be able to allocate them differently, which could free up some tuition expenses for the AOTC.

How exactly does that work with allocating scholarships? I'm in a similar situation and H&R Block is also showing I don't qualify. Is there a specific form or section where you make this allocation? I'm confused about how you can just decide how your scholarship money was used.

Sounds kinda sketchy tbh. Like are you sure this is legit with the IRS? I never heard you could just move scholarship money around on paper to get more tax credits. Wouldn't that be like gaming the system or something? Not trying to be rude but I don't wanna get audited either.

You don't need a special form for allocation - you just report the amount of scholarship that covers qualified education expenses as tax-free, and any amount covering room and board or other non-qualified expenses as taxable income. H&R Block has a section for this but it's not obvious - it's in the education interview where you enter your scholarship information. It's completely legitimate and the IRS actually provides guidance on this. You're not "gaming the system" - you're accurately reporting how your scholarship funds were used. If some of your scholarship went to living expenses (which most students use some scholarship money for), that portion is taxable income but doesn't reduce your qualified education expenses for the AOTC.

Wait how does this even work? I don't understand how some other company can call the IRS for you... like don't they need all your personal info to verify who you are? Seems weird to hand that over to some random service.

I'm sorry but this sounds like complete BS. There's no way the IRS would let some third party hold your place in line. And even if they somehow could, the agent would never talk to you about your tax situation without going through all their identity verification questions. I'm calling major scam on this one.

They don't need your personal info to wait in the IRS queue. They simply call the IRS, navigate the phone tree to the right department, wait on hold, and then when an agent is about to pick up, they conference you in. At that point, YOU talk directly to the IRS agent and handle all the verification yourself. No one from the service ever speaks to the IRS about your tax information. They literally just do the waiting for you. The IRS has no idea someone else was holding the line before you got connected. Once you're on the call, it's just you and the IRS agent - completely private and secure. They just save you from having to listen to the hold music for 3 hours.

I actually called my parents right after I posted this, and you're right - they were planning to claim me as a dependent! I didn't realize they were doing that since I've been living on my own and paying most of my own bills. We're going to talk about it more this weekend to figure out what makes the most sense. Do you know if it would be better for them to claim me and get the credit, or for me to file independently? They're in a much higher tax bracket than me if that matters.

This is actually a fairly common scenario and you need to do some calculations to figure out what's best for your family overall. If your parents claim you, they might get the benefit of the AOTC (up to $2,500) plus potentially other benefits like a dependent exemption. However, only the first $1,500 of the AOTC is non-refundable (reducing their tax they owe), while the last $1,000 is refundable (paid to them even if they don't owe tax). If they're in a high tax bracket, they might benefit more. If you file independently, you can claim the AOTC yourself, including the refundable portion. Since you're in a lower tax bracket, this might be more valuable to you. The deciding factor is usually which arrangement saves the most money for your family as a whole. Sometimes parents and students agree to split the difference if one option is clearly better overall.

This happened to me too!! The H&R Block software is super sensitive to those eligibility questions. I actually had to delete my entire education section and start over to fix it. The system never explained what was wrong - just showed $0 for the credit amount.