The American Opportunity credit is aimed at taxpaying college students or their parents, to reduce the costs. This credit can offer greater tax savings compared to other education related tax benefits. The American Opportunity credit reduces your taxes on a dollar-for-dollar basis, rather than just reducing your income tax liability.
There are several requirements to be eligible to receive the American Opportunity credit.
What are the eligibility criteria for the American Opportunity credit?
To be a student that is eligible for the American Opportunity credit, you must meet the following criteria:
- Be enrolled in at least one academic semester during the applicable tax year;
- Maintain at least half-time status in a program that leads to a degree or credential;
- Have not completed the first four years of post-secondary education;
Why am I not eligible for the American Opportunity credit?
You are not eligible for the American Opportunity credit if:
- You have completed the first four years of post-secondary education
- Have less than half-time status in a degree program.
- Have been convicted of a state or federal crime because of a drug conviction.
How many times can I claim the American Opportunity Tax Credit?
As an eligible student, you can receive a maximum of one American Opportunity tax credit each year. If you are a parent claiming the American Opportunity credit for your dependent students, and have two eligible dependents, you can claim different educational tax benefits for them. You just can’t claim more than one tax benefit per year for each student.
How to calculate your American Opportunity Tax Credit:
The amount of credit available is equal to:
- 100% of the first $2,000 of qualified expenses, plus:
- 25% of the expenses that are in excess of $2,000.
The maximum annual American Opportunity credit available per student is $2,500.
Can I claim the American Opportunity Tax Credit if I get financial aid?
For the American Opportunity credit, the IRS does not require a reduction of qualified expenses by any amount paid with borrowed funds, such as student loans or credit cards. However, you cannot include any amounts received from the following:
- Tuition grants from an employer;
- Tax-free scholarships or fellowships;
- School refunds;
- Federal Pell grants;
- Non-taxable assistance other than gifts and inheritances.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
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What expenses qualify for the American Opportunity tax credit?
The American Opportunity credit does not cover costs associated with the following:
- Medical insurance
Given that the purchased items you are claiming relate to the program of your study, expenses that qualify for the American Opportunity credit include the costs of:
- Equipment for your studies
These can be claimed as long as you are paying tuition fees to an eligible educational institution.
How do I know if I claimed the American Opportunity credit?
To claim for the American Opportunity tax credit, either the student or the taxpayer claiming the student as their dependent, must complete the relevant sections of IRS Form 8863 and attach it to their personal income tax return.
Why do I only get $1000 for the American Opportunity credit?
The American Opportunity credit begins to phase out when:
- Single taxpayers have an AGI (adjusted gross income) that is between $80,000 and $90,000
- Taxpayers filing jointly have an AGI that is between $160,000 and $180,000
The tax credit becomes completely unavailable to taxpayers whose AGI exceeds these thresholds ($90,000 for single filers or $180,000 for joint filers).