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William Perez

Planning for the American Opportunity Tax Credit

By July 25, 2009

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A new tax credit for 2009 and 2010: the American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable. That means students who have reduced their tax liability to zero can still get extra money back from the federal government by utilizing this credit. The tax credit is scheduled to be available only for the years 2009 and 2010, unless Congress decides to extend the credit to other years.

Unlike the Lifetime Learning Credit or the Hope credit, the American Opportunity credit expands the definition of qualifying educational expenses. In addition to tuition and required school fees, students can also include the cost of course materials such as books, lab supplies, software and other class materials are part of their tax credit calculations. Students should keep receipts for their tuition, books, and other course materials as supporting documentation.

By my calculations, undergraduate students earning up to $30,466 would have zero taxes through a combination of the American Opportunity credit of $2,500 and the Making Work Pay credit of $400. Students earning below this amount may have refundable credits, meaning that their refund could potentially be larger than the amount of withholding they paid in.

November 3, 2009 at 12:09 pm
(1) Redonthehead . Missouri says:

No where have I found the requirement that the student must be claimed as a dependant of the taxpayer taking this new “American Opp. Tax Credit”.

So, can a Grandparent pay $2000 of qualified expenses, AND the Parents pay $2000 of qualified expenses of the SAME student yet both file for the tax credit?

I do see on the Draft version of form 8863 that the student’s name and SSN must be stated, but that in itself does not answer the question above

November 18, 2009 at 12:08 pm
(2) B. Conrad says:

If you have 2 kids in college, is the $1000 limit on the refundable amount available for each student or is it a total of $1000 for the taxpayor.

December 26, 2009 at 11:21 am
(3) Tom in Kansas says:

When receiving a scholarship or grant, it will most of the time be beneficial to be able to spend those for non-qualifying expenses and go ahead and pay the income taxes on the scholarship or grant at the very low rates of the student. The parents will then be able to claim the full credit on their returns. This strategy is most beneficial at public junior colleges, where a years tuition and fees are almost equal to the credit.

January 21, 2010 at 3:59 am
(4) CASEY says:

I received financial aid. Do I qualify and how do I report my financial aid on my taxes. My financial aid was all grants. Please help.

January 25, 2010 at 2:21 pm
(5) Danita says:

What documentation is required for the “related course materials?”

January 25, 2010 at 2:59 pm
(6) William Perez says:

Receipts for the actual course materials. Plus syllabi for each course showing which books, materials or software are required for the course.

February 7, 2011 at 4:52 pm
(7) becky says:

can a student who support themself and their baby get the American opportunity credit and the child tax credit?

February 9, 2011 at 4:16 pm
(8) Sherry says:

Do you have to have earned income to receive the refundable portion of the American Opportunity Credit?

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