Claiming The American Opportunity Credit

This is a very valuable credit for students who are pursuing a first degree in college. You can claim this credit for yourself, your spouse, or any dependent that you claim on your tax return.

It is very important to note that the American opportunity credit can be claimed ONLY for the first four years of post-secondary education for each eligible student. This means, then, that this credit is applicable only to college students who are in their freshman, sophomore, junior, and senior years. This credit is therefore not available to post-grad students.

To be eligible to claim the American opportunity credit, the following conditions must be met:

• The student must be enrolled in a program that leads to a degree or other recognized educational credential. This means that the student must be enrolled in an accredited college, university, vocational school, or other accredited post-secondary educational institution.
• The student must be taking at least half the full-time workload for the course of study for at least one academic period during the calendar year.
• The student must not have been convicted of a felony for possessing or distributing a controlled substance.

For purposes of the American opportunity credit, qualified education expenses include the following:

• Tuition and certain related expenses required for enrollment or attendance at the eligible educational institution.
• Expenses for books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution. (For example, the expenditure for purchasing a computer could qualify for the credit if the computer is required as a condition of enrollment or attendance at the educational institution.)

The following expenses do not qualify for the credit:

• Room and board.
• Transportation.
• Insurance.
• Medical expenses.
• Student fees, except those that are paid as a condition of enrollment or attendance.
• Expenses paid with non-taxable funds or tax-free educational assistance.
• Any expenses that are used to claim any other tax deduction, credit or educational benefit.

To qualify for the credit, the expenses must be paid for an academic period beginning during the year, or no later than in the first three months of the following year.

The amount of the American opportunity credit is 100% of the first $2,000, plus 25% of the next $2,000 paid for each eligible student’s qualified tuition and related expenses. Therefore the maximum credit allowed per eligible student is $2,500. The total education credit that you can claim on your tax return, however, will be up to $2,500, multiplied by the number of eligible students that you claim on your tax return. There is therefore no dollar limit per tax return for this credit.

The American opportunity credit is partially a nonrefundable credit, and partially a refundable credit. Therefore, if the amount of the credit is more than your tax liability, the amount that exceeds your tax liability is refundable to you, up to a maximum of 40 percent of the credit for which you are eligible (that is, up to a maximum of $1,000).

The American opportunity credit is reduced ratably if your modified AGI exceeds $80,000 ($160,000 if filing a joint return). The credit is phased out totally if your modified AGI is greater than $90,000 ($180,000 if filing a joint return).

The primary objective of this article is to empower taxpayers to learn to do their own taxes. For more detailed information on all your deductible educational expenses, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3,” ($6.98) on


Milton G Boothe is an IRS Enrolled Agent with over twenty years of tax and financial accounting experience, including several years at PricewaterhouseCoopers. He is also a British certified Chartered Accountant. He is currently employed in private tax practices where he helps people resolve their tax problems, minimize their taxes, and routinely represents the interests of taxpayers before the Internal Revenue Service. As an Enrolled Agent (EA) Boothe is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals.
Milton G Boothe is also the author of several tax publications, wherein he encourages people to empower themselves by learning to do their own taxes.

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