Should You Forgo a Personal Exemption so Your Child Can Take the American Opportunity Credit?

If you have a child in college, you may not qualify for the American Opportunity credit on your 2014 income tax return because your income is too high (modified adjusted gross income phaseout range of $80,000–$90,000 for single, Head of Household or Qualifying Widow filing status; $160,000–$180,000 for joint filers), but your child might. The maximum credit, per student, is $2,500 per year for the first four years of post-secondary education.

There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her — and the child can’t claim themselves as an exemption.

But because of the exemption phaseout, you might lose the benefit of your child as an exemption anyway. The 2014 adjusted gross income thresholds for the exemption phaseout are $254,200 (singles), $279,650 (heads of households), $305,050 (married filing jointly) and $152,525 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.

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