May 1, 2016: American Opportunity Tax Credit
The American Opportunity Tax Credit is a federal income tax credit for qualified education expenses paid for an eligible student for the first four years of higher education.
Tax benefit: You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. The amount of the credit is 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of qualified education expenses you paid for that student. This credit is claimed on Form 1040 line 50 as a credit against taxes payable.
The American Opportunity Tax Credit is a federal income tax credit for qualified education expenses paid for an eligible student for the first four years of higher education.
Tax benefit: You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. The amount of the credit is 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of qualified education expenses you paid for that student. This credit is claimed on Form 1040 line 50 as a credit against taxes payable.
Who can claim the credit:
Qualified Education Expenses:
Eligible students for AOTC must:
Income limits for the AOTC:
If you need to adjust your AGI to find your MAGI, there are worksheets in the Publication 970 .
- The person who claims an eligible student as a dependent also claims the credit. All qualified education expenses of the student are treated as having been paid by that person.
- An eligible taxpayer or their dependent, but not both of them, can claim the LLTC for an eligible student dependent's expenses for that year.
Qualified Education Expenses:
- Eligible educational institutions file a tuition statement, Form 1098-T, for each student they enroll and for whom a reportable transaction is made.
- An eligible educational institution is generally any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions meet this definition.
- In addition to tuition, qualified education expenses for the AOTC include required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance
Eligible students for AOTC must:
- Be pursuing a degree or other recognized education credential
- Be enrolled at least half time for at least one academic period* beginning in the tax year
- Not have finished the first four years of higher education at the beginning of the tax year
- Not have claimed the AOTC or the former Hope credit for more than four tax years
- Not have a felony drug conviction at the end of the tax year
Income limits for the AOTC:
- To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).
- You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
- You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).
- Foreign earned income exclusion,
- Foreign housing exclusion,
- Foreign housing deduction,
- Exclusion of income by bona fide residents of American Samoa, or of Puerto Rico.
If you need to adjust your AGI to find your MAGI, there are worksheets in the Publication 970 .
