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The American Opportunity Credit and the Hope Credit

The American Opportunity Credit that was signed into law in 2009 is actually a modification of the Hope Credit. Therefore, the Hope Credit is now known as the American Opportunity Credit for 2010.

No taxpayer can claim both the American Opportunity Credit and Lifetime Learning Credit for the same student in one year. Both credits can be claimed, however, for different students for one year.

2009 was the last year that the Hope Credit could be claimed, and it was only for students at Midwestern disaster area schools. For that year, the Hope Credit was extended to up to $3,600 for those particular students.

The IRS limited claims on the Hope Credit for 2009: “You can claim the Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area.”

However, for 2010, the American Opportunity Credit is the credit that taxpayers should look to qualify for.

The maximum amount for the American Opportunity Credit is $2,500 per student with the first $2,000 of qualified educational expenses being included and up to 25% of the the next $2,000 spent on qualifying educational expenses being included. Thus, if at least $4,000 are spent on qualifying educational expenses, a taxpayer will likely qualify for the maximum $2,500 credit.

As mentioned previously, it is the taxpayer who supports the student that will qualify for the credit, and if the student supports his or herself, then they will qualify for the credit.

The American Opportunity Credit is limited to the first 5 years of post-secondary education. The student must be enrolled in school at least part-time. If a student is convicted of a drug offense or felony the credit will be lost. Up to 40% of the credit may be refundable. The $2,500 amount is for qualifying expenses only.

“Qualifying expenses” are a bit tricky and they do not include expenditures for room and board, insurance, and athletic fees. The IRS Says qualified expenses are: “the tuition and fees paid at most colleges and universities for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer.

The IRS also says, “Only certain expenses for course-related books, supplies, and equipment qualify.” The supplies and books do not need to be purchased directly from the institution to qualify as well.

Another important detail to note is that a student can not claim the American Opportunity Credit if he or she is a dependent of someone else. For instance, if the student has a parent or guardian that lists him or her in the “exemptions” section of their tax return, the student his or herself can not qualify for the credit. However, the student’s parent guardian can qualify for the credit as long as the student meets the requirements listed above.

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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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  1. christi
    September 9th, 2010 at 16:33 | #1

    Hello, does the American opportunity credit expand eligibility to 6 years? In other words if I took the hope credit for two years could I than take 4 continuous years of American opportunity credit if it takes that long for me to receive my degree? Also if a computer is required for online classes at home can it be deducted along with book expenses? Thank you

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