American Opportunity Credit

American Opportunity Credit

American Opportunity Credit

Last year there was a big change in the education credit, the American Opportunity Credit was added. With this came a change in what was allowed to be deducted. Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.

The hope and lifetime learning credits: Qualified education expenses include only amounts for books, supplies and equipment required to be paid to the institution as a condition of enrollment or attendance.

This credit went from a nonrefundable credit to 40%of credit may be a refundable: the rest is a nonrefundable credit. Meaning you could actually receive money back on it.

In the past most people did not have any taxable income so they did not get to take advantage of this credit. Under the American Recovery & Reinvestment Act (ARRA) more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making 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 income above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

The Hope credit generally applies to 2008 & earlier tax years. It helps parents and students pay for post-secondary education. The Hope credit is a nonrefundable credit. This meant that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

The Hope credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents' college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. Generally, you can claim the Hope credit if all three of the following requirements are met:

You pay qualified education expenses of higher education.

You pay the education expenses for an eligible student.

The eligible student is either yourself, your spouse or a dependent of whom you claim an exemption on your tax return.

You cannot take both an education credit and a deduction for tuition and fees for the same student in the same year. In some cases, you may do better by claiming the tuition and fees deduction instead of the Hope credit.

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