How American is the American Opportunity Tax Credit

October 22, 2009

Many parents and college students will be able to offset the cost of college over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009 signed by the Obama administration.

What the IRS wants you to know about the new 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 in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials. (Note: room & board and meal plans are not on this list) This credit does not cover the ‘Total’ Cost of Attendance.

2. The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 per student each year. 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 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. Consult your CPA to find which one is better for your specific situation.

Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at the official IRS Web site at

While it is important to know these deductions and credits, it is equally as important if not more important to understand the rules of the game. AZ College Consulting’s founder J.D. Wyczalek (why-zall-ick) says “It is important to understand the rules of the game. You wouldn’t use the rules for a baseball game with an opponent who is playing by NFL rules on a football field, would you? Nor would you use a 1040 tax form that was dated 1982. Understanding and implementing current college admissions and financial aid rules is critical. By understanding these current rulings, we can legally and ethically stack the deck in our favor. Let the fat cats figure out how to squeeze another dollar out of the other guy, not our child, not our future college student.”

The answer to your college problem is our solution, whether it be assisting in finding best fit colleges for your child, or finding colleges that have great financial aid packages or figuring out how to lower your college costs and coming up with the best plan to pay your share of college in a comfortable manor, we are Arizona’s premier college planning firm. We are just a click away.

   Send article as PDF   

Comments are closed.