American Opportunity Tax Credit

As a part of the American Recovery and Reinvestment Act (AARA), parents and students will be eligible for a tax credit over the next two years. This tax credit will assist qualifying individuals to pay for college expenses not covered with the Hope Scholarship.

The America Opportunity Tax Credit will provide the following:

1. Modifies the existing Hope Scholarship Credit for the 2009 and 2010 tax years.
2. Provides the tax credit to include individuals with higher income.
3. Provides the tax credit to those individuals who owe no tax.
4. Adds required course materials to the list of qualifying education expenses:
   1. Textbooks
   2. Supplies
   3. Equipment
   4. Any other course materials that are identified as required.
5. Permits the tax credit to be claimed for four (4) post secondary education years.
6. Many will qualify for the maximum annual credit of $2500 per student.
7. Credit is available to individuals whose modified adjusted gross income is $80,000 or less.
8. Credit is available to married couples filing a joint return with modified adjusted gross income of $160,000 or less.
9. The Tax credit is not available for those individuals whose income exceeds $80,000 for single and $160,000 for married couples filing a joint return.
10. Students and parents must retain receipts, cancelled checks, transcripts of classes or documentation that verifies period of enrollment for the tax year.
11. The tax credit is based on 100 per cent of the first $2000 of tuition, fees, and course materials paid during the taxable year, PLUS 25 percent of the next $2000 of tuition, fees, and course materials paid during the taxable year.
12. Students and parents cannot claim the Tuition and Fees tax deduction in the same year that they claim the American Opportunity Tax Credit or the lifetime learning credit. They must choose between them.
13. The student or parent will be able to reduce their tax liability one dollar for each dollar of credit for which they are eligible. If the amount of the American Opportunity Tax Credit for which they are eligible is more than their tax liability, the amount of the credits that is more than their tax liability will be refunded to the student or parent, up to a maximum refund of 40 percent of the amount of the credit for which they are eligible.
14. Additional information is available on the IRS website: www.irs.gov Publication 970, Tax Benefits for Education.