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Education Tax Topics

American Opportunity Credit

What is the American Opportunity Credit, how do you qualify for it, and what expenses does it apply to?

The American Opportunity Credit – known also as the American Opportunity Tax Credit – applies to qualified education expenses for the first four years of higher education for eligible students. The credit equals 100% of the first $2,000 paid in qualified expenses and 25% of the next $2,000. The total maximum credit is $2,500 per eligible student. 40% of the credit, up to $1,000, is refundable.

Who is eligible for the American Opportunity Credit?

To qualify, students must fit the following criteria. They must be:

  • Pursuing a degree or certificate from an eligible institution – an eligible institution is one that qualifies for federal grants and student loans
  • Enrolled at least part-time for at least one academic period beginning in the tax year – an academic period is determined by the institution
  • In the first four years of higher education at the beginning of the year
  • In the first four years of a degree or certificate program for the first time
  • Free of any felony drug convictions

Which expenses qualify for the American Opportunity Credit? 

The expenses that qualify for the American Opportunity Credit include those “necessary and required” to complete courses at a post-secondary school. This includes the following; 

  • Tuition and required fees paid
  • Cost of required books and materials
  • Certain equipment required for the course of study (such as dental equipment for a dental student).

To claim the full credit, your modified Adjusted Gross Income (AGI) must be $80,000 or less, and $160,000 or less if you and your spouse are filing a joint return. You can claim a smaller percentage of the credit if your individual income is between $80,000 and $90,000, or $160,000 and $180,000 for joint filers. 

Remember that the American Opportunity Tax Credit only applies to the first four years of higher education.


Remember that the American Opportunity Tax Credit only applies to the first four years of higher education.

Is the credit refundable?

Up to 40% of the American Opportunity Credit is refundable. The other 60% is used as a nonrefundable credit. For example, if you have a tax liability of $1,000 and claim the full $2,500 in credit, you can use the $1,000 of the $1,500 nonrefundable credit and get a refund of the full $1,000 of the refundable credit. The remaining $500 is lost because it can only be used to offset income tax.

How can I claim the American Opportunity Credit?

The American Opportunity Credit is calculated on Form 8863, Education Credits. The total credit amount goes to Form 1040. The total credits are carried to Schedule 3 then Form 1040 for the nonrefundable portion of the credit and Form 1040 for the refundable portion of the credit.

Will claiming the American Opportunity Credit delay my return?

The PATH Act, signed into law in 2015, delays refunds for tax returns claiming the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC) until after February 14. Tax refunds that include the American Opportunity Credit can be issued before February 15.


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