240 American Opportunity Tax Credit

The American Opportunity Credit was made permanent in 2015.  The credit is an education credit that can be used if a taxpayer or a dependent of a taxpayer is attending a post-secondary school in pursuit of a certificate or degree.The American Opportunity Credit was made permanent in 2015.  The credit is an education credit that can be used if a taxpayer or a dependent of a taxpayer is attending a post-secondary school in pursuit of a certificate or degree. A post-secondary school is defined as a college, university, community college, technical school, etc as long as the post-secondary school participates in federal aid. The $2,500 credit can be claimed for tuition, course-related books, supplies, equipment, course fees, course materials, etc that are required for the first four years of a post-secondary education. Expenses are not covered under the American Opportunity Credit are Room / Board Transportation Insurance Medical Expenses Student fees (not required) Same Expenses paid with tax-free educational assistance Same Expenses for other tax deductions, credits, or educational benefits To qualify for the American Opportunity Credit, 1. The student must be at least half time 2. Has not completed a post-secondary education at the beginning of the year 3.  Can not be claimed for more than four (4) years 4.  The taxpayer or dependent can not have been convicted of a Federal / State felony drug conviction at the end of the year. The credit is 100% of the first $2,000 of qualifying expenses and 25% of the next $2,500.  For example of the taxpayer or dependent had $3,000 of qualifying expenses, the credit would be 100% of the first $2,000 and 25% of the next $1,000 for a total credit of $2,250.   For qualifying expenses $4,000 and over, the credit is $2,500. There are income limitations where the credit begins phasing out using the modifying gross income. If the taxpayer is single the credit begins phasing out between $80,000 and $90,000.  The credit completely phases out at $90,000 for a single taxpayer. If the taxpayer’s filing status is married filing jointly the credit begins phasing out between $160,000 and $180,000.  The credit completely phases out at $180,000 for taxpayers filing as married filing jointly. For most taxpayers, the adjusted gross income (AGI) will be the modified gross income.   For taxpayers who have foreign income exclusion, foreign housing exclusion, foreign housing deduction, and exclusion of income by bonafide residents of American Samoa or Puerto Rico, taxpayers will add these exclusions and deductions to their adjusted gross income. Taxpayers claiming the American Opportunity Credit will use Form 8863 to claim the educational credit.   The student (taxpayer or dependent) will receive a form 1098-T from the post-secondary school to claim the educational credit.