Six Important Facts About the American Opportunity Tax Credit

7305361The IRS recently posted a tax tip (Tax Tip 2009-11) regarding the provisions of the American Opportunity Tax Credit, which was created as a part of ARRA 2009. The six facts reported in the IRS notice are as follows:
  1. The American Opportunity Tax 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.
  2. The credit is equal to 100% of the first $2,000 spend and 25% 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 (single taxpayers) or $160,000 (married taxpayers filing jointly).  The credit is phased out gradually for taxpayers with incomes above these levels.
  4. 40% of the credit is refundable, so even if the taxpayer owes no tax he can receive up to $1,000 of the credit for each eligible student as a refund.
  5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education. (The previous Hope Credit was available only to students in the first two years of post-secondary education.)
  6. You cannot claim the tuition and fees 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, whichever is more beneficial to you.
Of course this changes the landscape of available tax credits and therefore the affordability of college for lots of folks.  If your situation is such that tax credits could make the difference between going to college or not, you should probably talk your situation over with your tax advisor.
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Post from: Getting Your Financial Ducks In A Row IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment). Six Important Facts About the American Opportunity Tax Credit Share and Enjoy: Digg del.icio.us Facebook Google Bookmarks email LinkedIn MySpace StumbleUpon TwitThis Live Technorati Tipd Yahoo! Buzz

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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