American Opportunity Credit
The American Opportunity Credit is a nonrefundable tax credit for students in their first two years of college. This tax credit may be used for tuition and related fees and is applicable to payments made on, or after, January 1, 1998. The credit is equal to 100 percent of the first $1,000 and 50 percent of the next $1,000 of qualified tuition and related expenses paid by the taxpayer within a tax year.
- The student must be enrolled in one of their first two (2) years of post-secondary education at an eligible institution, and the student must be enrolled at least half time in a program leading to a degree or certificate during at least one semester or summer session within the tax year.
- An eligible student must have a high school diploma or its equivalent.
- The credit is only allowed for two (2) taxable years per student.
- Since it is a nonrefundable tax credit, if a taxpayer has no tax liability, the tax credit will not be available.
- The Hope Scholarship Credit covers qualified costs, which includes tuition and fees, but specifically excludes books, room and board, nonacademic fees (i.e., student activity fee, athletic fees, insurance expenses, etc.), and expenses involving sports, games, or hobbies unless they are part of the student’s degree program.
- The credit is gradually phased out for taxpayers who have a modified adjusted gross income between $40,000 and $50,000 ($80,000 to $100,000 for married taxpayers filing jointly).
- Scholarships and grant aid do not count as qualified tuition and related expenses paid by the taxpayer. Generally only out-of-pocket expenses count; however, this includes gifts, bequests, and inheritances as qualified tuition and expenses paid by the taxpayer.
For more information concerning the American Opportunity Credit, call the Internal Revenue Service at 800-829-1040 or visit the website at http://www.irs.gov/publications/p970/ch02.html.