If you are currently enrolled in college or an immediate family member is living with you,
The American Opportunity Tax Credit is the break you are looking for.
You can claim yourself, your spouse or your children or even all of you if all of you are attending college. The credit is $2,500 per qualifying member of your family.
Before going deeper with this credit, let’s see how this credit gives you a break to all 4 years your attending college.
Details about the American Opportunity Tax Credit
- Credit is worth up to $2,500/ student
- You can claim the credit for 4 years while you’re in college.
- Tuition, books, computer, and supplies could be included as a deduction
- 40% of the credit is actually refundable if you don’t have any tax liability, otherwise, the full amount of $2,500 will be credited towards your tax liability. Lowering your tax bill.
Rules and eligibility of The American Opportunity Tax Credit (AOTC)
- You need to be pursuing a degree
- You are enrolled at least one academic period. An academic period could be a semester, trimester or summer school session.
- You have not claimed the credit for more than 4 years.
- You are still in school and had finished the four years of higher education. Must be an undergraduate.
- No Felony drug conviction at the end of the tax year.
Items that are not qualified with the AOTC:
- Room and board
- Transportation
- Insurance
- Medical Expenses
- Expenses paid with tax-free educational assistance (grants, scholarships, etc.)
Let’s say you spent $100 in supplies and you redeemed that credit, therefore you cannot claim it again in another credit. No double-dipping, that how you get in trouble.
Another good thing about the credit is, 40% of the credit is refundable. That equates to $1000 that you can have if you don’t have any tax liabilities.
Income limitations for AOTC
The IRS considers you too rich to claim the credit.
- For single tax filers, your Modified adjusted gross income must be $80,000 or less.
- Married filers are MAGI of $160,000 or less.
- The credit phases-out at $90,000 for single and $180,000 for married filers.
Careful with claiming the AOTC
Since the credit is refundable, so it’s prone to abuse and the IRS is more particular about it. Make sure you have a folder for the receipt on each of the items that you claimed. If the IRS notifies you for an audit. They will need supporting documents to justify the claim of credit.
If documents are insufficient you will be subject to a fraud penalty.
You can also be banned to claim the AOTC for two, or up to 10 years.
Take advantage of the Tax Credit
This is one of the few tax credits that give you a refundable amount. The key here is to organize your receipts per semester just in case the IRS asks for a copy of the document.
So if you enrolled last year let your tax preparer know or if you are preparing your taxes yourself you will need Form 8863 to fill-out.
You can conveniently schedule an appointment or call our office if you have any questions.
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