Other Tax Questions
Questions and comments on other topics covered in Fairmark.com, such as UTMA accounts, and any tax questions that don't fit our other categories.
Tax Credit for College Student Laptop
Posted by: Boutwell, January 2, 2010 11:59PM
The 2009 changes to federal education credits (the new "American Opportunity Credit") removed the requirement that expenses must be paid directly to the school for "course-related books, supplies and equipment."

If a college student buys a desktop or laptop computer, does it qualify for the credit?

How about Internet access charges?

Some schools require students to have their own computer. At others, the curriculum and syllabus assume that a personal computer will be available.

The statute (Section 25A) refers only to "course materials."

At the same time this change was made, a change was made to the rules for computer purchases using Section 529 funds. Those are allowed in 2009 and 2010.

Re: Tax Credit for College Student Laptop
Posted by: Art, January 3, 2010 02:09AM
This is new, so I'm really guessing here.

I would include the cost of the desktop or laptop, but only to the extent it is used for coursework. So if a student buys a laptop as needed for coursework, and uses it 80% for coursework, I'd allow 80% as related expenses.

And if you wonder where the 80% is found, I'd guess it is written on the ceiling like so many other tax figures :-(

I'd also guess if someone suggested keeping a logbook, approximately zero percent of students would do so.

Finally, for purposes of including a laptop or similar as part of related educational expenses, I think the concept of listed property would not apply.

Re: Tax Credit for College Student Laptop
Posted by: Boutwell, January 3, 2010 02:19AM
So if a professor assigns pages 17-92 and 185-280 of a 400-page textbook, then only 40% of its cost would count, unless the student certified that none of the rest of it was read just out of intellectual curiosity?

And let's not get into the student who buys a used text on Amazon for $20 and resells it when the semester ends for $25.

Re: Tax Credit for College Student Laptop
Posted by: gary t, January 3, 2010 04:17PM
Well, I would contend the computer was purchased for "coursework" and would use 100%.

Re: Tax Credit for College Student Laptop
Posted by: jainen, January 4, 2010 04:32AM
>>I would contend the computer was purchased for "coursework" and would use 100%<<

What would you base that contention on? Can you point to ANYTHING in the original post that even suggests the computer is used for coursework?

Re: Tax Credit for College Student Laptop
Posted by: gary t, January 5, 2010 06:23PM
I was actually addressing the allocation percent for college use (assuming the primary reason for purchase was for college).
Instead of using a percent of 80% (or more), just justify the purchase was due to college attendance, the laptop would not have been purchased if not for college and use 100%.




de minimus amount
Posted by: jainen, January 5, 2010 06:41PM
>>the laptop would not have been purchased if not for college<<

First of all, the original post did not state that. There is no reason to assume that every computer bought by a student is used for school work. In fact, it is common for young men and women to have multiple computers and related devices, especially if they are gamers or do very technical lab work.

Secondly, even if the purchase is required for school the code does not allow a deduction for personal usage (except perhaps a de minimus amount).

Re: de minimus amount
Posted by: Boutwell, January 5, 2010 07:17PM
This is not a business deduction. It's a credit, for one of several items that are personal expenses. (Tuition and books, for example.)

My original post was not inspired by a specific situation. I am just trying to anticipate questions that I expect will be asked many times in the next three months -- and for which IRS, if it had much foresight, could have provided some guidance months ago.


Re: Tax Credit for College Student Laptop
Posted by: tomd37, January 5, 2010 10:57PM
Tax-Aide training today on this subject including the discussion about including the cost of computers. Will get back this evening with the details of the discussion.

Tom D.

Re: Tax Credit for College Student Laptop
Posted by: tomd37, January 6, 2010 02:45AM
The discussion in Tax-Aide training today centered on the words found in Pub 17, Chapter 35, Education Credits on page 239. No resolution was reached.

The American Opportunity Credit (AOC) states qualified education expenses include amounts spent on books, supplies, and equipment NEEDED for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.

The Hope and Lifetime Learning Credits states qualified education expenses include ONLY the amounts for books, supplies, and equipment REQUIRED to be paid to the institution as a condition of enrollment or attendance.

It is interesting to note the asterisk in the table at the top of the page next to the words Hope Credit that is tied to the statement that you can claim the Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area. Does that mean that the Hope is only for those students the disaster area and that the AOC now becomes the replacement for all other areas?

The discussion did not conclude that for the AOC the cost of a computer could or could not be included in education costs. Most college bound young people today have laptops, probably not purchased just for college.

This whole area seems to be an IRS bag of worms subject to much interpretation.

Tom D.

Re: Tax Credit for College Student Laptop
Posted by: Boutwell, January 6, 2010 05:17AM
>>Does that mean that the Hope is only for those students the disaster area and that the AOC now becomes the replacement for all other areas?<<

That's the way I read it. I think the instructions to the form for claiming the credits make this point, although I don't have them in front of me at the moment.

>>Most college bound young people today have laptops, probably not purchased just for college.<<

Most college bound young people today wouldn't think of using the same laptop for four years, any more than they would wear the same clothes for four years.

A friend who attended another seminar reports that computers were "allowed" in the discussion there.

We all know that ORDINARY and NECESSARY, in terms of other expenses, means HELPFUL and APPROPRIATE.

One of the problems I foresee here is that usually I am not doing the student's return, I'm doing one for the parents. What do they know, about what the kid needs, beyond what they are told? On the other hand, unless the college is one of those fundamentalist institutions where dancing and Democrats are not allowed, how can a student be expected to succeed without a computer?

Re: Tax Credit for College Student Laptop
Posted by: DeeDee, January 6, 2010 06:39AM
Boutwell noted: "We all know that ORDINARY and NECESSARY, in terms of other expenses, means HELPFUL and APPROPRIATE."

Maybe in some cases. Clearly a computer or access to the internet is required for MANY classes now. Witness, these statements from my son's college course schedule for Spr 2010:


"1291 ECON 102 05 LEC Full Principles of Macro Analysis 3 Price,Steve D 0 44 W 600PM 850PM BUTE 109 D2
Required internet use - access required."

AND

"2005 ACCT 201 09 DIS Intro to Financial Accounting 3 0 0

Entirely internet based with additional on-campus time."



The pertinent question in my mind is whether the necessity for internet access means that the student must OWN a computer.

did you buy the computer?
Posted by: jainen, January 6, 2010 07:15AM
>>The pertinent question in my mind is whether the necessity for internet access means that the student must OWN a computer.<<

Well, a student doesn't HAVE to buy even books. He can use a library copy, a friend's copy, or the one he got last year before he dropped out.

Boutwell is right in saying that the expense would be allowed if the computer being used for school is helpful even if not specifically required. But Boutwell still hasn't given any indication that the computer is being used for school.

I object to the assumption that any computer purchased by a student will necessarily be used for coursework. Maybe he bought it as a gift for his girlfriend. Maybe he bought it for gaming or porn or other sites not accessible through the school network. Maybe he bought an old computer for parts because he's into RC aircraft or a robotics hobby. Maybe he bought it because his cajun band is setting up a recording studio downtown. Maybe he bought it to be a dedicated control for his marijuana hydroponics system.

It's fine to "anticipate questions that I expect will be asked," but that anticipation should lead to some prepared questions of our own. Like, "why did you buy the computer?"

Re: Tax Credit for College Student Laptop
Posted by: gary t, January 6, 2010 04:10PM
Here is my take on the deduction and I'm sure jainen will show me the error of my ways:

For 2009 and 2010, the cost of a computer is a qualified higher education expense for withdrawals from Sec. 529 plans.

However, this expense is not qualified for the AOC, Hope, Lifetime or tuition and fees deduction. The following is a quote from IR-2009-78:

" In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction. "

So, the qualified withdrawals from 529 plans was expanded to include computer equipment, usage, etc., but the tax deduction/credit for educational expenses was not affected.




Re: Tax Credit for College Student Laptop
Posted by: edh, January 6, 2010 05:01PM
There is also this from the IRS's Q&A on the American Opportunity Credit:


"Q5. Does an expenditure for a computer qualify for the American opprtunity tax credit?

A. Whether an expenditure for a computer qualifies for the credit depends on the facts. An expenditure for a computer would qualify for the credit if the computer is needed for enrollment or attendance at the educational institution."

[www.irs.gov]

Re: Tax Credit for College Student Laptop
Posted by: Boutwell, January 6, 2010 05:42PM
Thanks, gary and edh. That certainly clears it up.

Here is the complete paragraph from 2009-78:

>>For 2009 and 2010, the ARRA change adds to this list expenses for COMPUTER TECHNOLOGY and EQUIPMENT or INTERNET ACCESS and RELATED SERVICES to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for COMPUTER TECHNOLOGY are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction.<< ][Emphasis Added]

So, now all we have to figure out are the IRS definitions of COMPUTER TECHNOLOGY and EQUIPMENT or INTERNET ACCESS and RELATED SERVICES.

Re: Tax Credit for College Student Laptop
Posted by: gary t, January 6, 2010 07:20PM
It is how we define certain terms and also, how we interpret phrases such as " In general ", that really differentiates tax preparers.

Re: Tax Credit for College Student Laptop
Posted by: Sven, January 7, 2010 03:51AM
What about schools that have a comprehensive fee including things like getting to wash your clothes in the dorm without asking Mom for a roll of quarters. Does making what would be a personal expense part of a college fee everyone has to pay allow tax credit for dirty duds? My eldest son's school in California has a mandatory fee that helps pay for energy cost increases the school incurs. Credit for that too?


Re: Tax Credit for College Student Laptop
Posted by: prominart, January 7, 2010 04:26PM
Many schools provide laptop computers to all students as a matter of policy, not for a specific class or function. The cost is wrapped up in tuition.

Whether it's paid for by tuition or not has zero effect on whether the use is qualified.

Many tax preparers jump at the chance to assume the role of government auditor and disallow anything they possibly can for the client. I suppose these types will scrutinize the client's kid's behavior and discount the tuition payment when computing an education tax incentive.

Call me zany. I'm going to put away the probe and apply the full amount of tuition.

Re: Tax Credit for College Student Laptop
Posted by: Boutwell, January 7, 2010 04:51PM
>Many tax preparers jump at the chance to assume the role of government auditor and disallow anything they possibly can for the client.<

It's called "protecting the revenue." I think that was the IRS mission statement back in the 70s, when many aging practitioners got their start. Fortunately, there are many aging clients who got their start paying taxes in the 50s and 60s, who value this attitude.


>Call me zany. I'm going to put away the probe and apply the full amount of tuition.<

Speaking of probing, and college students, there is an interesting story in, of all places, the Tuscaloosa News about college students and tax practitioners. It seems that football is not the only skill taught at the University of Alabama:


==After nearly three weeks of undercover work last January, students from the University of Alabama hoped their efforts would result in legislation regulating commercial tax preparers in the state.

That legislation died in the House of Representatives last spring, but new federal rules, announced by the IRS on Monday, will make the group’s work come to fruition on a national stage.

The UA students found that some seasonal tax preparation businesses overcharged low-income residents, persuaded them to take instant loans against future refunds at huge interest rates and even committed fraud by urging tax filers to claim dependents they did not have.

“One of our staff members delivered a report on our undercover work to the commissioner of the IRS in October, and we were incredibly excited at the news,” said Stephen Foster Black, director of the university’s Center for Ethics and Social Responsibility. “In one swoop, the IRS will be protecting literally millions of families across the country from predatory practices of many negligent and sometimes fraudulent commercial tax preparers who purposely target low-income families. . . .

Nearly 400 students worked with the Center for Ethics and Social Responsibility’s Save First program, which prepared taxes for families receiving the Earned Income Tax Credit — the credit applies to families making less than $42,000 a year with children or $20,000 a year without children — but the legislative efforts were spearheaded by five students, including UA senior and Paul Bryant High School graduate Kendra Key. [Bryant was better known by his nickname, Bear.]

The students were initially disappointed that the legislation was shot down in the House, but remained hopeful their work could still have an impact, Key said. The IRS began looking at their work after an April 13 article in BusinessWeek magazine, which highlighted their undercover investigation.==


[www.tuscaloosanews.com]







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