Don't forget there's also the "material participation" test for businesses. The IRS looks at whether you're actively involved in the operations on a regular, continuous, and substantial basis. For a side gig like yours, you'll want to keep good records of time spent working on your business. I track hours for my consulting work using a simple app. This helps support business classification if the IRS ever questions it.

Friendly reminder that the business vs. hobby distinction isn't just about which one saves you more in taxes right now! If you genuinely have a profit motive and are running this as a business, you should file as a business even if it might cost more in taxes. Filing as a hobby when it's really a business can cause problems later if you get audited. Plus, business losses can sometimes offset other income, and you're building Social Security credits with self-employment taxes.

I went thru this last year. It's annoying but not as bad as it seems. Just be patient and persistent. You got this, OP!

Hey Amy! I just went through this exact same thing a few months ago. The 4883C letter looks scary but it's actually pretty straightforward once you get through to them. A few things that helped me: 1. Call early in the morning (like 7-8 AM) - way better chance of getting through 2. Have your Social Security card handy too, not just tax returns 3. They might ask about previous addresses or employers from past returns 4. Write down the confirmation number they give you at the end! The whole verification call took about 20 minutes once I got someone on the line. My refund came through about 5 weeks later. You'll be fine! 👍

Just went through this with my kid's 1098-T. Box 4 is super confusing but here's the simple version: If you DIDN'T claim education credits in the previous year: - Box 4 doesn't affect anything. You can ignore it. If you DID claim education credits in the previous year: - You need to recalculate those credits with the reduced expense amount - May need to file an amended return (Form 1040-X) Since you didn't claim credits, you're in the clear! Just make sure you're correctly reporting your taxable scholarship amount (Box 5 - Box 1) as income on your current return.

This is a great explanation thread! I went through something very similar last year and wanted to add one small clarification that helped me understand Box 4 better. The key thing to remember is that Box 4 represents money that was *returned to you* for expenses from a prior year. So in your case, you paid tuition out of pocket in Fall 2024, then got financial aid that covered those same expenses, so the school refunded your payment in 2025. This is different from just getting a regular financial aid disbursement - it's specifically a refund of money you previously paid. That's why it shows up in Box 4 instead of affecting your current year's Box 1 or Box 5 amounts. Since you correctly didn't claim education credits in 2024 (which makes sense if your scholarships exceeded your qualified expenses anyway), this refund doesn't create any tax consequences for you. You just report your 2025 taxable scholarship amount normally. One thing that might help for future reference - if you expect to get additional financial aid after paying tuition, you might want to wait to pay until the aid is finalized to avoid these kinds of adjustments. But obviously that's not always possible with payment deadlines!

Based on all the helpful discussion here, it sounds like you should be able to claim the credit since you're living there as your primary residence and paying for the improvement. However, I'd strongly recommend getting this confirmed in writing before making such a large purchase. One thing I haven't seen mentioned is that you might want to consider having a written agreement with your in-laws about the improvements you're making. Since you're essentially investing in their property, it could be beneficial to document that you have permission to make these improvements and that you're responsible for the costs. This could help support your tax credit claim and also protect your investment in case your living situation changes. Also, since you mentioned you'll be there for 2-3 years, make sure you understand what happens if you move before the system pays for itself through energy savings. The tax credit helps upfront, but you want to make sure the overall financial arrangement makes sense for your timeline.

This thread has been incredibly helpful! As someone who's been researching this exact situation, I want to add one more consideration that might be relevant. Since you're living in your in-laws' house under an informal arrangement, you might want to check if there are any gift tax implications if the total value of your improvements (including the heat pump) exceeds certain thresholds. The IRS might view substantial property improvements as gifts to the property owners, especially if there's no formal lease agreement. That said, for the heat pump specifically, the consensus here seems solid - you should be able to claim the 30% credit since it's your residence and you're paying for it. Just make sure to document everything thoroughly: receipts, manufacturer certifications, proof of residence (utility bills in your name, voter registration, etc.), and ideally that written agreement with your in-laws that others mentioned. One last tip: if you're planning other energy-efficient improvements during your time there (like insulation, windows, or a smart thermostat), you might be able to claim credits for those too under the 25C credit program, which covers up to $1,200 annually for various efficiency improvements.

Has anyone actually claimed this credit as a non-owner and gone through an audit successfully? I'm in a similar situation with my parents' property and getting conflicting info from different tax preparers.

I went through this exact situation two years ago when I installed a heat pump at my grandmother's house where I was living. The key thing that helped me was getting everything documented upfront - I made sure all the invoices were in my name, kept utility bills showing I lived there, and got a letter from my grandmother confirming I was responsible for the improvements. One thing I'd add to the great advice already given - consider having a written agreement with your in-laws about the improvements you're making. Even something informal can help establish that you're genuinely responsible for these costs as part of your living arrangement, not just doing them a favor. This could be helpful if the IRS ever asks questions about why a non-owner is claiming the credit. The 30% credit is substantial, so it's definitely worth pursuing if you meet the requirements. Just make sure you understand which components of your HVAC system qualify - the heat pump itself definitely does, but things like ductwork modifications might not.