College Tax Credits

The American Opportunity Tax Credit is a partially refundable tax credit included in the American Recovery and Reinvestment Act of 2009 (section 1004). Under the American Recovery and Reinvestment Act, more people will qualify for the American Opportunity Credit during the next two years (tax years 2009 and 2010). The credit is not available on the 2008 returns taxpayers are filing in 2009.

The American Opportunity Tax 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 do not owe tax. The new credit 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 years. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. The new law also makes 40 percent of the credit refundable.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or for married couples earning $160,000 or less and who file 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.

To learn more about the American Opportunity Tax Credit, talk with your accountant.