Can I get a free computer by doing my taxes right?
September 25, 2011 6:30 PM Subscribe
My roommate told me I can buy a computer and get a full refund on my taxes because I'm a student. Is this true, or partially true, or complete B.S.?
My roommate said that students can get a full rebate on a computer purchase each year on their federal tax refund. He claims he did this when he was in college in Texas a few years ago, and that he would build computers for people and they would do this. I would really like to be able to buy a new computer at the end of December and get a refund on this in April. Is there any truth to what he said? If so, are there any provisions to this? I know just enough about taxes to do mine on TurboTax under my dad's supervision, so if there is a provision, am I likely to screw it up and not get money back?
My roommate said that students can get a full rebate on a computer purchase each year on their federal tax refund. He claims he did this when he was in college in Texas a few years ago, and that he would build computers for people and they would do this. I would really like to be able to buy a new computer at the end of December and get a refund on this in April. Is there any truth to what he said? If so, are there any provisions to this? I know just enough about taxes to do mine on TurboTax under my dad's supervision, so if there is a provision, am I likely to screw it up and not get money back?
You might want to make sure that you aren't misunderstanding the difference between a refund and a deduction. (I know nothing about the specific situation you are referring to, but the way you wrote the question made me think this might be what was happening.)
posted by 256 at 6:41 PM on September 25, 2011 [2 favorites]
posted by 256 at 6:41 PM on September 25, 2011 [2 favorites]
Entry from TurboTax's FAQ
So it looks like you can get a tax deduction under certain conditions, but that's different from a refund/rebate. A deduction just reduces the amount of income that you pay taxes on, but as a student you probably don't have a lot of taxable income anyway.
posted by qxntpqbbbqxl at 6:45 PM on September 25, 2011
So it looks like you can get a tax deduction under certain conditions, but that's different from a refund/rebate. A deduction just reduces the amount of income that you pay taxes on, but as a student you probably don't have a lot of taxable income anyway.
posted by qxntpqbbbqxl at 6:45 PM on September 25, 2011
Best answer: He appears to be talking about the American Opportunity credit, and it does appear to be viable, according to Publication 970 (see pp. 9-10) and this IRS FAQ. If the school requires you to have a computer in order to attend, then it's a qualified educational expense. The first $2000 in expenses can be claimed 100%, and the next $2000 can be claimed at 25%. As long as the computer costs less than $2000, then you can claim the credit for the whole thing.
Here's the tricky bit -- the credit is only 40% refundable. A refundable credit means you can get money back if you don't owe any taxes. A non-refundable credit cancels out tax amounts that you do owe, but you don't get the extra back.
So, if the computer costs $1000 and you claim the AO Credit for it, then it works like this:
1) If you owe no taxes, then you can get a $400 refund from the IRS (the 40% refundable portion of the $1000 credit) on top of any withholding that's being refunded to you.
2) If you owe up to $600 in taxes, then you wind up owing no taxes (due to the 60% non-refundable portion of the credit) and you can still get a $400 refund from the IRS (the 40% refundable portion) in addition to any withholding.
3) If you owe more than $600 in taxes, then you subtract the amount you owe from $1000, and get the rest back as a refund.
4) If you owe more than $1000 in taxes, then the credit reduces what you owe by $1000 and you still have to pay the remainder.
That's a rough outline, anyway -- IANAAccountant, but the main thing to remember here is that while you can claim the entire cost of the computer as a credit, that doesn't mean you can get that full amount back as a refund.
posted by McCoy Pauley at 6:54 PM on September 25, 2011 [3 favorites]
Here's the tricky bit -- the credit is only 40% refundable. A refundable credit means you can get money back if you don't owe any taxes. A non-refundable credit cancels out tax amounts that you do owe, but you don't get the extra back.
So, if the computer costs $1000 and you claim the AO Credit for it, then it works like this:
1) If you owe no taxes, then you can get a $400 refund from the IRS (the 40% refundable portion of the $1000 credit) on top of any withholding that's being refunded to you.
2) If you owe up to $600 in taxes, then you wind up owing no taxes (due to the 60% non-refundable portion of the credit) and you can still get a $400 refund from the IRS (the 40% refundable portion) in addition to any withholding.
3) If you owe more than $600 in taxes, then you subtract the amount you owe from $1000, and get the rest back as a refund.
4) If you owe more than $1000 in taxes, then the credit reduces what you owe by $1000 and you still have to pay the remainder.
That's a rough outline, anyway -- IANAAccountant, but the main thing to remember here is that while you can claim the entire cost of the computer as a credit, that doesn't mean you can get that full amount back as a refund.
posted by McCoy Pauley at 6:54 PM on September 25, 2011 [3 favorites]
Best answer: You're probably thinking of the American Opportunity Tax Credit.
Relevant section: "An expenditure for a computer would qualify for the credit if the computer is needed as a condition of enrollment or attendance at the educational institution"
It's a credit, which is handier.
Under it, you can also deduct the cost of tuition, textbooks, and other necessary expenses.
posted by CrystalDave at 6:56 PM on September 25, 2011
Relevant section: "An expenditure for a computer would qualify for the credit if the computer is needed as a condition of enrollment or attendance at the educational institution"
It's a credit, which is handier.
Under it, you can also deduct the cost of tuition, textbooks, and other necessary expenses.
posted by CrystalDave at 6:56 PM on September 25, 2011
I don't really trust that TurboTax FAQ 100%. I am not a tax attorney, but when I was researching this last year, "qualifying expenses" were items that were required for courses. So textbooks on the syllabus: yes. If the school or an individual class, for some reasons, requires you to purchase a computer: yes. If you just buy a computer on which you do coursework (but it's not really required and you could use a computer lab instead): no.
posted by muddgirl at 6:57 PM on September 25, 2011
posted by muddgirl at 6:57 PM on September 25, 2011
Response by poster: So if I'm reading that right, if I paid $4,000+ in tuition and books this year (which I did), I would already be receiving the max credit of $2,500. I paid with an inheritance and student loans, both of which are qualified expenses. So even if my school requires me to own a computer, it wouldn't matter because I'm already going to be getting the maximum credit.
posted by DoubleLune at 7:04 PM on September 25, 2011
posted by DoubleLune at 7:04 PM on September 25, 2011
There is also the lifetime learning credit for tuitionfor tuition. Sorry about the ask link You can probably find it somewhere else also. I know I claimed the tuition from my graduate school on it and it reduced my tax load significantly.
posted by koolkat at 2:24 AM on September 26, 2011
posted by koolkat at 2:24 AM on September 26, 2011
It look like you are solidly over the limit anyways. You have to be careful with the American Opportunity Tax Credit. Many things that seem like they should count are not actually eligible, such as health insurance, even if the school requires that you do have health insurance. It is pretty rare that ownership of a computer is required as a condition of enrollment, so I would expect that your roommate is confused.
From the linked IRS FAQ:
The following expenses do not qualify:
Room and board
Transportation
Insurance
Medical expenses
Student fees except if they are a condition of enrollment or attendance
Expenses paid with non-taxable funds or tax-free educational assistance
Same expenses used for any other tax deduction, credit or educational benefit.
posted by rockindata at 6:48 AM on September 26, 2011
From the linked IRS FAQ:
The following expenses do not qualify:
Room and board
Transportation
Insurance
Medical expenses
Student fees except if they are a condition of enrollment or attendance
Expenses paid with non-taxable funds or tax-free educational assistance
Same expenses used for any other tax deduction, credit or educational benefit.
posted by rockindata at 6:48 AM on September 26, 2011
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posted by mkb at 6:37 PM on September 25, 2011