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American Opportunity Tax Credit Details

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CNNMoney has broken down the details of the latest stimulus package and has the following to say about the American Opportunity Tax Credit, which was a refundable credit pushed heavily by Pennsylvania Representative Chaka Fattah (D):

New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.

The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.

The stimulus package also has another education related tax break, the Pell Grant has been increased to $5,350 for 2009 and $5,550 for 2010; an increase of $500 in both cases.

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190 Responses to “American Opportunity Tax Credit Details”

  1. Monica says:

    Hello!

    I’m a student that is in an accelerated VERY expensive Hygiene program in California. Prior to attending, I took all my prerequisites at several community colleges which would probably add up to about four years (and never received a degree). Now at the institution I am at, I am counted as a Junior and they have accepted all of my courses from community college prior to me starting the core classes of Dental Hygiene. I guess what I’m getting at is…AM I ELIGIBLE FOR THIS OR NOT? I have previously paid for all community college classes out of my own pocket and with no aid at all. I have not used loans or financial aid until my first year of attendance at this school.

    HELP! I can’t get an answer!

  2. Monica, you say you are listed as a junior by the college, so that’s what I would focus on. I’m not an enrolled tax agent, though. If I were you, I’d call a Jackson-Hewitt, H&R block, CPA, Independent tax preparer organization, and ask if they have an enrolled agent to do your taxes. I don’t believe they cost any more — at least they don’t cost any more at my shop! In the case that something happens and the IRS contests your claim, the enrolled agent is all over that and is qualified to defend you in tax court if it would ever come to that (loooong shot, IMHO).

    Just one first-year tax preparer’s opinion, I hope someone else can jump in on this.

  3. P.S. — just read my comment and should have added “yes, I would think that your junior status makes you eligible,” keeping all of the first posts caveats in mind.

    Hope that helps.

  4. Sally says:

    My daughter was 5th year senior in the tax year 2009. I had all ready claimed 2 years of Hope and 2 years of Lifetime. I spoke with the IRS this morning and I CAN NOT take the new AOTC because I had used the Hope Credit for 2 years. I hope this helps anyone with a 5th year status. Even though the college considered her a senior…I can’t claim the AOTC.

    • Rachel says:

      That does help Sally thanks. I just graduated as a 5th year senior and the way my tax program made it sound…I could take the credit. I appreciate your blog about this issue.

      • Lindsey says:

        I was having the same problem, because even though it was my 5th year of college, they kept asking me if I was and undergraduate at January 1, 2009. I’m really bummed I can’t claim the AOTC

      • Alex says:

        I just got off the phone with someone who works at the IRS and asked about this since I just graduated in December 2009 with my bachelors, but it was a 5 year program and she said I could take the credit.

  5. nothrmidclassdad says:

    Jon,

    –and how much was minimum wage?

    Tuition was enough to work 2 jobs and still not get it done ;(

  6. Blake says:

    lets say im taking a diploma program at a business school, but they offer associates degrees also. are the students of this business institute eligible for the American Opportunity Tax Credit?

  7. fred says:

    In many families it is the grandparents that have money available to help with college.
    If the tax breaks applied to them, more youth could attend college, and the debt they incure would be less.

  8. Anonymous says:

    Can you claim this if you are getting your masters?

  9. Anne says:

    So… what I have yet to really see answered, is… can you claim this tax credit if you go to school using grants/loans? The tuition for my school was only 1,116 dollars last year. In the “qualified expenses” portion of that, that’s what I put, regardless of the amount I got from grants. So, would that be correct? Kind of confusing.

    • Jim says:

      Usually if your expenses are offset with whatever grants you receive. Loans don’t count against expenses since you need to pay them back, but grants do.

      So if you had $5000 in expenses, received a $2,500 grant and a $2,500 loan, then you have $2,500 in expenses. That’s how all the educational credits like the Hope credit work.

  10. Anne says:

    So It should work out because of the loan, then? I dont want to get in trouble for claiming it. But I did indeed get a stafford loan for last year. (even though it ended up that I didn’t need to use more than like, 20 dollars of it towards school tuition.)

  11. Lisa says:

    What I’ve learned as a first-year tax preparer.

    If you have a 1098-T from your higher education institution then you’ll see a tuition amount and a scholarships and grants amount.

    In simple terms, if the school reports that you paid paid $1000 for tuition, and that you received $500 in scholarships or grants, then $500 your higher ed tuition that is used for figuring the AOTC (first four years of college)or Lifetime Learning Opportunity credit.

    Loans don’t figure into the picture for the AOTC.

    Of course, this isn’t official tax advice. The IRS website has good information at http://www.irs.gov

  12. beth says:

    I attended grad school. Do I quality for the American Opportunity Tax credit? i am hesitant to do so since I don’t want to get into trouble.

  13. Lisa says:

    The AOTC applies to the first 4 years of undergraduate school. For graduate school help, check out the Lifetime Learning Credit.

  14. Josh says:

    I’m a college Sophomore who pays the majority of my own expenses. My parent’s paid for my first semester at a community college which is owned by our state university. I did reasonably well, and got a 3.25 GPA my first semester. After getting the Lottery Scholarship, I was able to transfer to the main university and get into my major. I still lived at home at the time, what with the school being literally 1 mile away, and my parent’s informed me that they could not afford to pay for my fee’s or books, which added up to about $1200, so I got a job at the beginning of spring 2009. I really had trouble adjusting to the 6 hours of work I had on top of my studies, and I FAILED a class, revoking my scholarship. From that point on, I saved all my money for tuition, books, fee’s and living expenses.

    Now my parent’s own a small business, a very mom & pop style operation, and they fell on hard times with the economy which meant I had to start buying them groceries and paying some of the bills with the money from my job. Somehow, I still managed to get the $2500 for tuition and fee’s at the beginning of fall 2009 for my sophomore year, and I paid this off towards the end of the semester. My parent’s never claimed me on their tax returns for reasons that are very complicated and I am not at liberty to discuss here, and I was informed that I can claim myself as an independent since I pay 80% of my expenses, so I have done so at my job. This also means that I never had the opportunity to fill out a FAFSA and have had to by and large pay out of pocket. When my company sent me my tax from this year(this is the first year I have had a job outside of helping my folks at their business) It showed that I had about $400 in federal taxes paid, and a lot more in medicare and social security. My father says I can only get back my Federal tax(not that he would know) and my question is how much will I receive back here from AOTC– the $400 or closer to $2000? My school sent me a form saying I had paid $2900 to them, so that being the case will I get back only $400, or will I receive most of that tuition back? If I can get about $2000 back, it means I can help my parents through the recession, have tuition for next semester covered, AND be able to finally move out guilt free next semester! What do you expect I will be able to get back? Any advise or help is appreciated.

  15. John says:

    I make over $90k but after deductions it is more like $70k. I do post grad, working my way through. Do I get the deduction? I haven’t for the last few years. I should get something from the stimulus as I am one of the people paying for it!

  16. Heather says:

    Im 24 and I am having conflicting answers as to if I qualify. I am trying to use the American Opportunity Credit and I called the IRS and they say yes I qualify. However, I tried Turbotax and they told me no I didnt. But, did not give specific reasons. Im 24, independent (no one claims me on their taxs), I make $22,000, have no children,in a degree program. The rules state if you are 24 and YOUNGER but im right at 24 and now 25 (feb 3). I called H &R Block to ask about the forms and how to do them and they helped but then when I told them I was 24 they said I didnt qualify because Im still dependent. But, im not. Can anyone help? I dont want to send my form in and the IRS fixes it and I get less than what I think I am. Help Please????? :)

    • KWASI says:

      As a graduate student making 60k, do I qualify for the American Opportunity Credit? Can somebody help me? Thanks

    • Lisa says:

      Hi Heather, I’m a tax preparer for Jackson Hewitt. I suspect you got bounced on the AOTC by Turbo Tax because you were 24 in 2009. A lot of 24 year olds still in college at 24 are still claimed as dependents by their parents. As a dependent of someone else’s tax return, you wouldn’t qualify. However, since you are independent and file your own taxes, then you do qualify. There are other caveats as well, such as enrollment at least half-time and not being in your fifth year of a 4 year program (smiles).

      Any in case, IRS.Gov and JK Lasser have good reference materials. If you want a guarantee that you are filing correctly, I suggest you go to a paid preparer. If you go to a qualified preparer, then they can guarantee that it will be filed correctly. I don’t know about H&R, but Jackson Hewitt does offer a free guarantee that the taxes will be filed properly. They will fix any errors. And you’ll know before the taxes are transmitted whether or not you qualify.

  17. Lisa says:

    Hi Kwasi, the AOTC only applies to the first 4 years of undergraduate school at a qualified institution. As a graduate student, you do not qualify. The Life Time learning credit is your best bet.

  18. KWASI says:

    I bought my second home last year . . Do I qualify for the any credit like second time home buyer: Thanks

  19. Lindsay Martin says:

    My husband I are are both graduate students, and I’m not sure if we both qualify as “college students” under the household information section. Does anyone know? Or can you recommend a place to look?

  20. vincent says:

    the entire country needs to quit sponging off of other people. ALL of you need to pay for ALL of your own college expenses. its not my job nor your neighbors job to pay for your college expenses. America – the worlds newest communist country!

  21. Jake "Al Gore" Johnson says:

    Look Vincent grow up! I like you paying for my college! Is it ok if I goof off some this semester?

  22. Jake "Al Gore" Johnson says:

    vinnie, vincent, vinola
    I have decide to surf Maui this semester, please send money!
    Jakester

  23. Jake "Al Gore" Johnson says:

    Mrs. Vinncent

    Please send cookies and money!
    Hugs
    Jakester

  24. Jake "Al Gore" Johnson says:

    vincent,
    Do you still eat your own poop?

    Hugs
    Jake

  25. Carol says:

    My husband has gone to school part-time off and on for years. He does not have a degree as of yet and most of his previous credits are so old they are no longer acceptable. He is currently enrolled in a college and is considered a sophomore. I’ve called the IRS and the person there said he would qualify for the AOTC. I’ve also read through the IRS publication and it just isn’t crystal clear. I wanted to get another opinion just to make sure.

    • Lisa says:

      Carol, how many hours does he have? The usual full-time semester is at least 12 hours. If he has 24 hours, for example, then I could see where you could easily make the argument that he is only a sophmore under AOTC. It has to do with first 4 years. That’s 8 semesters – 12 semesters (counting summers if you need to), of a minimum of 12 hours each.

      Double check the benefit of Lifetime Learning Credit versus AOTC. AOTC is usually better, but in case there is an issue with AOTC, you should qualify for Lifetime Learning Credit, IMHO. I’m assuming that your income is the in the right range and that he can use the college credits to advance his work situation.


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