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More Info About the American Opportunity Tax Credit

The American Opportunity Tax Credit is available for Americans to offset the cost of college. The credit can be claimed through December 31, 2010 for expenses paid during the 2009-2010 school year. The American Opportunity Credit is the new name of the Hope Credit. The credited was renamed after changes were made to the maximum amount that could be claimed per calender year among other changes.

The American Opportunity Tax Credit and the Lifetime Learning Credit can not be claimed in the same year for one student. The choice between the two credits should depend on which one is more beneficial for the taxpayer. Taxpayers may be eligible for up to a $2,500 tax credit depending on the amount they spend for qualified educational expenses. Up to 40 percent of the credit is refundable, and the IRS details more information about the credit in a recent newsletter with six facts about the credit:

Six Facts about the American Opportunity Tax Credit

There is still time left to take advantage of the American Opportunity Tax Credit, a credit that will help many parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.

Here are six important facts the IRS wants you to know about the American Opportunity Tax Credit:

This 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.

The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. 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.

The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.

You cannot claim the tuition and fees tax 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 and should consider which is more beneficial for you.

Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at IRS.gov/recovery.

Links:

Tax Benefits for Education: Information Center
Publication 970, Tax Benefits for Education
YouTubeVideo:

Education Credits (Parents): English | Spanish | ASL

Audio File for Podcast:

American Opportunity Tax Credit

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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