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The American Opportunity Tax Credit is a temporary tax credit for college students and parents with children in college. It is partially refundable and applies only to tax years 2009 and 2011. Eligibility is based on income and student status, and it covers not only tuition but also fees for books and materials. It can be claimed by filing a 1040 or 1040x correction within three years of the original return or two years after payment.
The American Opportunity Tax Credit is, until now, a temporary tax credit offered to people who are college students or to parents with children in college. Although there may be an effort to extend this tax break, and measures have been introduced that would open it up to even more students, the credit is currently temporary and applies only to tax years 2009 and 2011. The credit does not apply to all students. students and individuals must qualify by income and student status to receive it. It is partially refundable and those who claim it up to a maximum of $2,500 US Dollars (USD), can receive a refund of up to $1,000 USD even if they owe no tax. A tax credit directly reduces the taxes paid, and when taxes are refundable, this means that some or all of the money left over after tax payments can be refunded to the taxpayer.
The basic requirements to be able to claim the American Opportunity Tax Credit include that students must be college students and in their first four years of study. This means they cannot have spent more than three years in college in the past and qualify. Individuals returning to school for a second undergraduate degree or graduate degree are not eligible.
Second, people must qualify by income. In a household where two people are married filing jointly, the American Opportunity Tax Credit cannot be taken if income exceeds $160,000 USD. A student or single person filing for a head of household generally cannot earn more than $80,000 USD. This still greatly extends the ability to claim educational expenses for people in higher income levels, and can potentially cover the significant cost of low-cost schools like junior colleges.
Unlike some other education credits, the American Opportunity Tax Credit doesn’t just apply to tuition. Fees for books or materials that are required may also be claimed. A laptop, for example, might be claimed if a person must use it in a class, but it can’t offset part of the expenses claimed by someone who doesn’t absolutely need it.
Some people may have missed filing this credit due to many tax changes that were permanently or temporarily put into the code in the late 2000s. It is possible to claim the credit by filing a 1040 or 1040x correction, as long as this is made within three years of the original return or two years after payment. When you simply file the regular 1040 form, Form 8863 is completed and included with the tax documentation. Sometimes filing Form 8863 can prevent people from taking other education deductions in the same year. The Hope Credit, from which the American Opportunity Tax Credit is derived, cannot be taken in the same years.
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