The new credit makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2012. It can be claimed by eligible taxpayers for college expenses paid.

Here are six important facts the IRS wants you to know about the American Opportunity Tax Credit:

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.


See the American Opportunity Tax Credit FAQs here.

Read about The American Recovery and Reinvestment Act of 2009 on the White House website by clicking here.

The American Opportunity Tax Credit
was extended for an additional two years through
December 2012

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