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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. spaige says:

    Can my son take the American Opportunity Credit if all of his tuition was paid for by State Grants? I say no but his accountant told him he could still claim it. How is this so?

    • Anelle says:

      He must not be an accountant! I’m a senior accounting major and well I have to read a lot of tax material. Click on the link below and read where it says: *No Double Benefit Allowed

      Unless his tuition expenses were far greater than his grant money and he paid the difference out of pocket or with student loans, he is not eligible for the credit. If this is the case, then he can claim it but must reduce his tuition expense total by any grants/scholarship received.

      http://www.irs.gov/publications/p970/ch02.html

      You cannot do any of the following.

      Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses, next.

      Adjustments to Qualified Education Expenses

      If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.

      • spaige says:

        Thank you for your answer. My son seems to think that no matter what I tell him because he paid for his tuition out of his pocket but was reimbursed 100% for this a month later, that he is entited, plus the fact that I believe they made a mistake on his 1099 because he paid for this in Dec. and was reimbursed for everything in January. Does this all make a difference? Will the government pick up on this? I just don’t want to see him get in trouble. Just a concerned parent.

        • Anelle says:

          I know what you mean by paying in 10′ and getting the money back in 11′ but the bottom line is “legally” he’s not entitled to the credit because he was reimbursed, and why mess with the IRS?

          He can certainly try out his luck and do it but if he gets audited the IRS will make him pay back whatever benefit he receives this year for taking the credit illegitimately.

          Will the IRS pick up on it? Nobody knows for sure, the IRS normally goes after big fish, but I’m an accounting senior who will soon become a CPA and the most ethical and responsible recommendation for me to give you is to convince your son not to do it. Because it’s just the right thing to do.

          Just for arguments sake I’m going to tell you about something in the tax code called the “Tax Benefit Rule”.

          Let me give you the example the IRS uses: In 2010 you deducted medical expenses not covered by insurance. In 2011 your insurance company determined that they should have paid a portion of the denied expenses. They sent you a check. This amount may be taxable because you claimed it as an expense paid by you in 2010.

          The tax benefit rule basically says that if you obtained some kind of tax break or benefit in year one and recovered it in year two you have to add it to your income and get taxed on it.

          Of course your son’s case is different but if not the tax benefit rule, I’m sure there’s another tax code out there that they can get him with.

          • spaige says:

            Now I am really confused. He took a Education Credit as well as a American Opportunity Credit. Do these credits go hand in hand, in other words, can you take both if your qualified? In my sons case I don’t believe he qualifies for any credits based on the fact he got grants that covered his tuition 100%. Thanks for any advice on this matter.

          • Anelle says:

            Hi Spaige,

            We’re going around in circles here. Let me just make this as clear as possible.

            1. No, both credits DO NOT go hand in hand. There are only 4 education credits and you can only take one in any given year, depending on your situation.

            These are the American Opportunity Tax Credit, the Hope Credit, Lifetime Education Credit and there is also the Education and Fees Deduction.
            BUT YOU CANNOT TAKE ANY TWO OR THREE, only one.

            http://www.irs.gov/newsroom/article/0,,id=107670,00.html

            I’m not sure who did your son’s taxes but they obviously don’t know what they’re talking about or you may think he took two but didn’t. Even when you’re filing yourself using Turbo Tax, it will only allow you to take one credit.

            2. Your son does NOT qualify for any credit because he was 100% reimbursed by grants, period. The fact that he paid in December and got reimbursed in January makes no difference.

            Once again, please go the the IRS website and read the section where it says:

            http://www.irs.gov/publications/p970/ch02.html

            ***No Double Benefit Allowed***

            You cannot do any of the following.

            *****Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses, next.***********

            P.S. Spaige, sorry if I’m sounding a little tough on you but the thing is at this point, you’ve done enough worrying for your son. He obviously does not know tax rules and his “accountant” is an unethical and corrupted douche for telling him he could take the credit.

            Last but not least, he already filed, so all he can do now is hope they don’t audit him. But to be honest, I have a hard time feeling sorry for people whom knowingly and willfully try to cheat the system. I hope your son genuinely didn’t know what he was doing, and for your piece of mind, that the IRS never picks up on it. Good luck.

  2. Cliff says:

    I wouldn’t believe anything on this forum. There are some obvious BS replies; such as saying that someone is not eligible for a american opportunity tax credit if they received a pell grant. That comment is false.

    • Anelle says:

      Sorry Cliff, I think you’re referring to one of my answers. Please read the entire thread before judging. I left additional comments on that particular question.

      It is possible to claim the credit but only if your tuition expenses were greater than what you received in “tax free funds” (aka grants, scholarships, etc).

      If your grant/scholarship amount was more than or equal to your tuition expenses you cannot claim the credit, because you can’t double benefit.

      I agree, forums are never reliable so I recommend you buy the college textbook I listed below so you learn all about tax regulation. This way, you wont have to resort to forums for answers. Be sure to update the edition every year since tax laws change constantly. You can also check out http://www.irs.gov (forms and publications).

      South-Western Federal Taxation 2011: Individual Income Taxes, 34th Edition

  3. sandra brown says:

    can you claim the savers tax credit if the money is in a cd and you qualify with income

  4. Benjamin says:

    Hi, Just a quick question. I filed my tax return for 2009 by myself and somehow missed this tax credit and I was in school. I didn’t go to school in 2010 but was wondering if I am still able to get the credit from 2009 that I never received? Thanks.

    • Anelle says:

      You do qualify if you were all of these:

      1. At least a halftime student in college (not h/s) in 2009

      2. Paid tuition out of pocket or with loans that exceeded any free money received if any, by the govt. such as grants and scholarships.

      If you would like to get the benefit of the credit you need to file an amended tax return. If you don’t know how to do this, go to H & R block or your tax preparer to do it.

  5. tk says:

    well I am on ss and did receive grants and loans, as i needed new computer, clothes, books..printer, ink , supplies and ya ya,,, do i qualify if i dont have a income other than hubby pension that is taxed?/

  6. Anonymous says:

    I am filing my taxes online and it approved me for american opportunity tax credit. Do IRS re-evalutates the whole thing and determines whether I should get it or not?

  7. aruna says:

    My son is 31 and in medical school . He is getting Federal student loan for tuition and living expense. What kind of tax credits can he get.

  8. Shelby says:

    I was paid more in scholarships/grants from my college than I paid for my tuition. The excess money was deposited to my bank account and needs to be accounted for as income. However, I also have other school expenses like books and class fees. Does the excess scholarship/grant money need to be added to my gross income? Or, will my other school expenses cancel out the extra scholarship/grant income?
    I know it’s better if the excess revenue is put into my gross income, because then it will be taxed at my marginal rate, rather than offsetting a tax credit. How do I get a definitive answer?

  9. Sondra J says:

    I have been in college full-time for the last 3 years and have never claimed any tax credit on my income tax, am I eligible to claim anything, if so what? I recive the Hope Scholarship and Pell.

  10. shannon says:

    I was advised by an accountant that the American Opportunity Credit may only be claimed by a student enrolled in a 4 year program. I was enrolled in the fall of 2010 for one chemistry course, but I also graduated this past year with my bachelors degree from a 4 year program (granted, it took me five years, but I took a year off and took classes as a non-matriculated student). Can I claim this credit or only the Lifetime Learning?

    Thanks for your help!

  11. Lisa says:

    If my tuition balance at the beginning of 2010 was $5542.00. Pell grant was 1933.00 and I paid 4059.00 Do I deduct the 1933.00 from my payment or the from the balance owed to school?

  12. RHONDA says:

    I have asked two both my accountant and a friends this question and both have managed to give an answer having nothing to do with the question. It is a simple yes or no question as I see it. My daughter is our dependent and qualifies for the full $2500 AOC, we normally end up with a refund on our taxes. I suggested that we change our W-4s, keep more of our weekly take home pay and take a chance of owing on our taxes to take advantage of the $1500 that isn’t refundable. Doesn’t that make since if the credit is extended into this coming year? My husband doesn’t want to pay end of year taxes, but as I see it, the least we can do is keep more of our take home pay with the cushion of the AOC to cover in case we go over up to the $1500 that we are wasting otherwise. Am I wrong? So far, I’m the only one who seems to be thinking along these terms! Help?

  13. Kristine says:

    I already filed my taxes and I used my school tuition for my taxes. My dad is also trying to claim it as well since he paid for some of it. Can he claim all of it?

  14. sal says:

    could you qualify for the American Opportunity Credit if you recieving financial aid. And it is not coming from your own money. Or a third party like financail paying for it.

  15. v says:

    My son was a high school student in 2010 but was enrolled in college half time over the summer. He was 17 yrs old at that time, and does not file any taxes. We paid for the tuition. I filled out the 8863 and am stuck on the questions for line 13 on part III….. do the questions apply to my son or to me?

  16. sean says:

    I’m under 24, can I claim the american opportunity tax credity myself? I am 20 years old. Turbo tax keeps telling me that I can, but I am not sure.

  17. Robin says:

    HELP!!
    I have been told by my accountant that my husband and I can not take the American Tx Credit for our 3 children who we paid over 37,000 dollars in tuition last year, because they are under 24 years old. What the heck? What is the purpose of this thing if you have to be over 24 years old? I don’t understand and when it tells me to go down to Part IV on the form we don’t qualify because our adj gross income was 121,000………Is he wrong or can I claim my 3 kids tuition for the credit?

  18. Robin says:

    OK, I got it! that section does not apply to me as a parent, who is claiming my children as dependents! It only applies if YOU are the filer and under 24! Woo hoo, I had to explain it to my accountant, who was confused too…

  19. Lisa says:

    My daughter moved out in June of 2010. But I paid for her classes, cell, insurance and gave her a little bit every month. Can I still claim the American Opportunity tax credits?

  20. Kalynn says:

    Ok I need help. My BF pays for his college out of his pocket but lives with his dad or mom depending on where he chooses to stay. His dad says he has to claim his tax credit for the college since he lives with him. My BF makes his own money and pays for everything just not rent. Is he getting ripped off by his dad claiming that credit when his dad didn’t PAY a damn thing?

  21. Inna says:

    Hello. My husband’s mother claimed American Opportunity Credit for him in 2007 and 2008 when we were not married. Then, she thought she couldn’t do it in 2009. We claimed the credit in our 2010 tax return. He’s been going to a community college since 2007 but changed his major, took time off and went part-time for a while. Technically, if we use the credit in 2011, it will be the 4th tax he’ll claim it (not consecutive though), but I don’t know if we can do it considering 2009 was skipped by his mother.

  22. Anonymous says:

    I gave social security to this company have not here from them about my money, is this a joke or for real, no call back number to contact. Hit me back at 916-670-3639

  23. aishah says:

    I am a tax professional one of my clent has a felony in 1982. it is past 25 years.Please state me what is the time sloth you have to qualify for this credit. As the time passed can you please answer does she qualify now

  24. Lisa says:

    My son’s 1098T form shows the amount of the charges from the school, then it shows the Grant (Financial Aid) he received which makes the calculation equal out to $0, so he is not eligible for the credits. However he purchased all his books outside the school with his own money and if I read correctly one of these credits covers books and materials. So how does that work is he eligible for those and if so how does he prove it and which credit should he apply for. Thanks

  25. Chelsea Boice says:

    Hi, I’ve been in school for 6 years, 2006-2012, I was not enrolled for one semester and was enrolled in 9 credits or less for 3 terms. During 2006 & 2008, I was claimed by my parents. Can I still receive the American Opportunity credit? H&R block is saying yes, while Turbo Tax is saying now. Help! Thank you


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