Divorced Parents and Education Tax Breaks

My ex-wife recently received sole custody of our son. My divorce decree states that I must pay one-half of his college tuition. My question is, Can I claim the American Opportunity Credit for my portion of my son’s tuition on my 2010 tax return?

It depends on who claims your son as a dependent for tax purposes. If you do, then you may be able to take advantage of the American Opportunity Credit, which applies to undergraduate tuition and qualified expenses (including fees, books and related course materials).

To qualify for the full $2,500 credit, you must have paid at least $4,000 in qualified expenses during 2010, and your adjusted gross income as a single filer must be $80,000 or less. The tax credit, which reduces your tax bill dollar-for-dollar, phases out entirely if you earn more than $90,000.

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But if your former wife claims your son as her dependent, any money you paid directly to the college under a court-ordered divorce decree is treated as if the payment was made by your son. That means if your ex-wife claims your son as a dependent on her tax return, then she may be able to count your payments toward her American Opportunity Credit, says John W. Roth, senior tax analyst with CCH, a tax-publishing company.

The American Opportunity Credit is scheduled to expire at the end of 2010. If you are eligible and haven’t spent enough to qualify for the full credit, you may prepay expenses for the spring 2011 semester up to December 31, 2010.

For more information about the American Opportunity Credit, see Cash In on Expiring Tax Breaks for Education Savings and Make the Most of Tax Breaks for College Expenses.