What is the American Opportunity Tax Credit?
Updated on October 02, 2025
by Jeff Patterson
Reviewed by
Jeff Patterson is an American living in Scotland and joined the team at Expat Tax Online after experiencing the complexities of living abroad with a family.
Table of Contents
The American Opportunity Tax Credit is designed for tax-paying college students or their parents to help reduce higher education expenses. It often provides greater tax savings than other education-related tax benefits.
The American Opportunity Tax Credit reduces your tax bill dollar-for-dollar, rather than just lowering your taxable income. US expats and students abroad may also qualify if their school is listed as an eligible educational institution.
Key takeawaysWho qualifies: Undergraduate students enrolled at least half-time who haven’t finished four years and have no felony drug conviction. US expats: Americans abroad can claim the AOTC if they or their dependents are enrolled in a school that qualifies as an eligible educational institution. Credit amount: The maximum annual credit is US$2,500 per student (up to US$1,000 refundable) Eligible expenses: Tuition, fees, books, supplies, and required equipment for classes. Ineligible expenses: Room, board, transportation, and medical insurance are not covered. 2024 income phase-out limit: You can’t claim the credit if your MAGI is over US$90,000 (US$180,000 for joint filers). |
Who is eligible for the American Opportunity Tax Credit?
To qualify for the American Opportunity Tax Credit (AOTC), a student must meet all of the following conditions:
- Education level: The student has not yet completed the first four years of post-secondary education (usually the freshman through senior years of college). Graduate students are not eligible.
- Enrollment status: The student is enrolled in at least one academic period (semester, trimester, or quarter) during the tax year for which the credit is claimed.
- Course load: The student is carrying at least a half-time workload in a program that leads to a recognized degree or credential.
- Criminal history: The student must not have a felony drug conviction on their record during the tax year.
- Location: Students enrolled in foreign universities may qualify if the school is listed as an eligible educational institution by the US Department of Education’s Federal Student Aid program.
Bottom line: The AOTC is mainly for undergraduate students who are enrolled at least half-time and working toward a degree, without disqualifying convictions.
Can US expats claim the AOTC if their child studies abroad?
Yes, US expats can claim the American Opportunity Tax Credit (AOTC) if their child studies overseas, as long as the foreign university is considered an eligible educational institution.
To qualify, the foreign university must appear on the US Department of Education’s Federal Student Aid (FSA) list of eligible institutions. You can search this list directly on the Department of Education website.
What expenses qualify for the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) can only be claimed for certain education-related costs. Here’s what counts and what doesn’t:
AOTC: Eligible vs. ineligible expenses
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Eligible expenses |
Ineligible expenses |
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See which tax credits you qualify for. Contact us today.
Can I claim the AOTC if my child gets financial aid?
Yes. You can still claim the AOTC even if your child receives financial aid, but you’ll need to subtract that aid when calculating qualified expenses.
For example, tuition covered by scholarships, Pell Grants, or employer-provided assistance cannot be included. Only the out-of-pocket portion you paid with cash, loans, or credit cards qualifies.
How much is the American Opportunity Tax Credit (AOTC) worth?
The American Opportunity Tax Credit (AOTC) can provide up to US$2,500 per eligible student each year. The calculation is:
- 100% of the first US$2,000 in qualified expenses
- 25% of the next US$2,000 in qualified expenses (up to a maximum total credit of US$2,500)
Refundable portion: Up to 40% of the credit (maximum US$1,000) is refundable, meaning you may get up to US$1,000 back even if you owe no US taxes.
Example: If you spend US$4,000 on tuition, books, and other qualified expenses, you can claim the full US$2,500 AOTC for that year.
How long can I claim the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) can be claimed for up to four tax years per eligible student. The years do not need to be consecutive, but once a student has used the AOTC for four years, they are no longer eligible.
Tip: The limit applies per student, not per taxpayer. Parents with more than one eligible child may claim the AOTC for each child, provided each qualifies.
How do I claim the American Opportunity Tax Credit?
- Decide who will claim the credit – Only one return can claim the AOTC for that student in a tax year. So, either the student or the taxpayer who claims the student as a dependent can claim it.
- Gather documents – Obtain Form 1098-T plus receipts for tuition, books, and required supplies (minus scholarships or grants).
- Check income limits (2024) – The credit phases out between US$80,000 and US$90,000 for single filers, and between US$160,000 and US$180,000 for joint filers.
- Calculate credit – Up to US$2,500 per student; 40% (max US$1,000) may be refundable.
- File with the IRS – Complete Form 8863 and attach it to your tax return (Form 1040 or 1040-SR). Don’t forget to include the school’s EIN from Form 1098-T on Form 8863
Why should US expats consider the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) is one of the most valuable education-related tax benefits for US citizens and Green Card holders, no matter where you live. With up to US$2,500 per student each year, and as much as US$1,000 refundable, it can provide real financial relief for expat families paying for higher education.
If you or your dependent is enrolled in an eligible US or foreign university, don’t miss the chance to claim this credit. For expats, it could mean lowering your US tax bill and even receiving money back, while helping cover the cost of education abroad.
FAQs
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Who can’t claim the American Opportunity Tax Credit (AOTC)?
You can’t claim the AOTC if any of these apply:
- You file Married Filing Separately.
- You (or your spouse, if filing jointly) are a nonresident alien for any part of the year, unless you choose to be treated as a resident alien for tax purposes.
- You don’t have a valid Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) by the tax return due date.
- You don’t provide the school’s Employer Identification Number (EIN) on Form 8863 when you claim the credit.
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Can US expats claim the refundable portion of the American Opportunity Tax Credit?
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Can I still claim the AOTC if I got a Pell Grant or scholarship?
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How many times can I claim the American Opportunity Tax Credit?
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Can I claim both the AOTC and the LLC in the same year?
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What is the difference between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC)?
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