Images
American Opportunity Tax Credit
June 17, 2010
According to The College Board (a not-for-profit association composed of more than 5,700 higher education organizations), the cost of attending a public college in the United States increased an average of 6.5% from 2008 to 2009, and the cost of attending a private college increased 4.4%. There is good news, however, for those who have expenses for post-secondary education during 2009 and 2010.
The American Opportunity Tax Credit expands the existing Hope Credit, making it available to a broader range of taxpayers. The American Opportunity Credit, in many cases, offers greater tax savings than existing educational tax breaks.
- While the Hope credit applied only to students in their first two years of post-secondary education, the American Opportunity Credit covers the first four years.
- Like the Hope Credit, amounts paid for tuition, tuition related expenses, and related fees are qualified expenses for the American Opportunity Credit. In addition, amounts paid for course materials, such as books, supplies, and equipment needed for a course of study are also qualified expenses for the new credit.
- The American Opportunity Credit is equal to 100% of the first $2,000 spent and 25% of the next $2,000 for a maximum of $2,500 per student per year. That's an increase of $700 as compared to the previous Hope Credit.
- The Hope Credit would offset tax owed, but it was not refundable. The American Opportunity Credit is 40% refundable. This means that if a taxpayer has no tax due, they can receive up to $1,000 back for each eligible student, unless the student's investment income is being taxed at the parent's rate, more commonly known as the "kiddie tax."
- Of course, the American Opportunity Credit is not without its limitations. The credit is available to single taxpayers making less than $80,000 or to married couples filing jointly making less than $160,000. After that, the credit begins to phase out with those individuals or couples making more than $90,000 or $180,000 respectively receiving no benefit. Also, as with the previous education credits, you cannot claim the American Opportunity Credit and the deduction for education expenses simultaneously.
- For any amounts paid for students who are not in their first four years of post-secondary education, the Lifetime Learning Credit is still available.
Here are some ways that you can plan to maximize the American Opportunity Credit for your 2009 and 2010 tax returns:
- If a requirement of enrollment or attendance is to purchase a computer, then this cost qualifies as an eligible expense for the credit.
- The credit is good on the first $4,000, so if you have not spent that by the end of 2010 remember that prepaid educational expenses for an academic period that begins in the first three months of 2011 qualify. Expenses paid in 2011 will not be able to benefit from the American Opportunity Credit.
The cost of education today can be daunting, but with some forethought there are planning opportunities available. Confused as to which option is best for you? Allow 415 Group to analyze which option, credit or deduction, is most beneficial, and maximize your benefit today.
