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More Info About the American Opportunity Tax Credit

August 29th, 2010 No comments

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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1098-T and the Hope Education Credit

July 2nd, 2010 2 comments

Form 1098-T is an information return used by educational institutions to report student information to the IRS. The form has information about the student including the student’s name, taxpayer identification number, address, academic status, and enrollment. The form also includes information about qualified educational expenses such as tuition and related expenses, and information on scholarships and grants that the student has received.

Every student that meets the reporting requirements for Form 1098-T must have an information return filed for them by their educational institution. A student can request a copy of their 1098-T from their institution and use the information to help them claim tax credits. The 1098-T information return does not have all of the information that is required to claim the credit, but it offers some of the required information.

Claiming the tax credit is not required by students. Students similarly are not required to file Form 1098-T but they may request a copy to help them apply for tax credits or have the information for their own financial records. The Hope Education Credit, American Opportunity Credit (an extension of the Hope Credit), and Lifetime Learning Credit are three educated related tax credits that students may qualify for.

Essentially, the credit is mostly to relieve the tax burden on parents and students who are not dependents of others who are paying for their own education. There are several requirements for the credit for both taxpayers and the student whose qualified expenses that the credit is being claimed for. Students may also claim the credit for their own taxes if they are not dependents of others.

Students can qualify for the Hope Education Credit if the meet certain requirements. The Hope Credit offers up to a $1650 tax credit for qualified students. The credit is claimed for expenses paid for by the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer.

The American Opportunity Credit extends the Hope Credit for up to $2,500 as a credit instead of $1650. The student for whom the credit is claimed can be enrolled up to 4 years instead of 2. Also, up to 40% of the credit is refundable. The American Opportunity Credit is available since the year 2009.

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