Question

American Opportunity Credit 1. What are the eligibility requirements for this credit/deduction? (e.g. dependency, pay the expenses, etc.) 2. What is the annual limit? 3. What expenses qualify besides tuition and required enrollment fees? 4. What education qualifies? 5. Which filing status qualifies? 6. What is the AGI phase- out?

Answer 1

American opportunity tax credit is credit for qualified education expenses paid for an eligible student for the first four years of high education

1. Eligibility requirements

A household with a qualifying student can receive the said credit. Parents claiming their student as a dependent can also claim $ 500 for child aged 19 to 23

For qualifying student

a. The student shall pursue a degree or other recognised education credential

b. The student shall be enrolled for atleast half time for atleast one academic period (semester, trimester, quarters, etc/)beginning in the tax year

c. The student shall not have finished first four years of higher education at the beginning of the tax year

d. The student must not have claimed opportunity credit or former hope credit for more than four tax years

e. The student must not have a felong drug conviction at the end og the year

The law also requires the tax payer to receive form 1098-T which is a tuition statement from eligible educational institute

The taxpayer, spouse in case of joint filing and the qualifying student must have a valid tax identification number before due date of return

2. Annual limit for American opportunity tax credit

A maximum annual credit upto $ 2500 per eligible student can be claimed. If the credit brings the amount of tax owed to zero, 40% of any remaining amount of the credit upto $ 1000 can be claimed as refund

The amount of credit is 100% of the first $2000 of qualified education expenses paid for each eligible student and 25% of the next $ 2000 of qualified education expenses spent

3. Expenses qualify under American opportunity credit

In general qualified expenses include tuition and fees for enrolment or attendance at an eligible educational institute which related to the same taxable year or first 3 months of the following year

It also include expenditure for course materials i.e. books, supplies and equipments needed for course study

The following expenses do not qualify

Room and board

Transport

Insurance

Medical expenses

Other fees

Expenses paid with Tax-free educational assistance

Expenses used for other tax deductions or benefits

4. What education Qualifies

Only higher education for pursuing a degree or other recognised education credential where the student is enrolled for atleast half time for atleast one academic period (semester, trimester, quarters, etc/)beginning in the tax year qualifies for AOTC

5. Which filing status qualifies

Filing as household, single or married and filing jointly can claim AOTC

For claiming the credits your status shall be other than

Filing status is married filing separately

non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes

You are not allowed to claim the credit if you were listed as a dependent on someone else’s return

6. AGI phase out

The american opportunity tax credit begins to phase out for

Single tax payers who have adjusted gross income between $ 80000 and $ 90000

Joint filers when adjusted gross income is between $ 160000 and $ 180000

They are eligible only for partial credit at a reduced rate and not the full amount of credit

Only single files with AGI upto $ 80000 and joint filers with AGI upto $ 160000 can claim full amount of credit$ 90000 for single and $ 180000 for joint threashold