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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. 

Who is eligible for the American Opportunity Credit?

To qualify, students must fit the following criteria:

  • Pursuing a degree or other recognized education credential*
  • Be enrolled at least part-time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the year
  • Be in the first four years of a degree or certificate program for the first time
  • Not have a felony drug conviction at the end of the tax year

Which expenses qualify for the American Opportunity Credit?

The expenses that qualify for the American Opportunity Credit include all those which are “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 over $80,000 but less than $90,000, or over $160,000 but less than $180,000 for joint filers.

Tip/Help

Remember that the American Opportunity Tax Credit 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 on Form 1040, Schedule 3, Credits and  Payments. The total credits are carried to Form 1040, Line 15 for the nonrefundable portion of the credit and Line 18 for the refundable portion of the credit. 

Will the American Opportunity Credit delay my return?

The PATH Act, signed into law in 2015, delays refunds with the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC) until after February 14, but does not include the American Opportunity Credit. Tax refunds that include the American Opportunity Credit can be issued before February 15.

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