American Opportunity Tax Credit

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American Opportunity Tax Credit

The American Opportunity Tax Credit has been renewed for 2011 and 2012 through the Tax Relief and Job Creation Act of 2010. Under American Recovery and Reinvestment Act (ARRA), there will be more eligible students and parents to take advantage of the American Opportunity Credit. This is a modification of the Hope Credit and includes higher income limits to qualify and adds in required course materials to the list of qualifying expenses. Additionally the credit will be available through four years of post-secondary education rather then the previously allowed two years.

Modified Adjusted Gross Income limits for the full credit are $80,000 for a single and $160,000 for those married filing jointly. Above these incomes, the credit is phased out and taxpayers making more then $90,000 or $180,000 for married filing jointly are not eligible for the AOTC.

How is the credit calculated? The credit is based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year. Of this, up to 40% or $1,000 is refundable. For example, if you can claim the full $2,500 credit, but you only had a tax bill of $1,500 for the year, you could receive a refund of $1,000. Also, keep in mind that these expenses are those that are not being covered in another way (such as 529, Coverdell ESA, etc).

What expenses qualify for the AOTC? Qualified tuition and related expenses, as well as books, supplies and equipment needed for your course of study.

What expenses do not qualify for the AOTC?

  • 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.

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