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Can I deduct the American Opportunity Credit on my tax return?
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| With higher education costs climbing steadily upward nearly 8% per year many families
are particularly concerned about accumulating enough money to put their children through
college. College cost projections are continually increasing. Based on the latest averages from
The College Board and recent average annual college cost increases, a child who entered
kindergarten in 1998 will face four-year college costs of nearly $100,000 if he or she chooses to
attend a public college in 2012. For a private college, costs will probably be double
that. The American Opportunity Credit
may be taken for qualified education expenses (i.e.,
tuition and fees, but not room and board or books) incurred during the first two years of
a taxpayer's, spouse's, or dependent's post secondary undergraduate education.
An eligible student must meet the following
requirements to deduct the American Opportunity Credit:
 | be enrolled in one of the first two years of post secondary education; |
| be enrolled in a program that leads to a degree, certificate, or other recognized
educational credential; |
| be taking at least half of the normal full time work load for his/her course of study
for at least one academic period beginning during the calendar year; |
| not have a felony conviction for possessing or distributing a controlled substance. |
The American Opportunity Credit
is nonrefundable and is available for up to 100% of the first
$1,100 and 50% of the second $1,100 of qualified tuition and related expenses paid
during a taxable year. If either the Lifetime Learning Credit or the education income
exclusion for withdrawals from an Education IRA is elected the American Opportunity Credit
may
not be taken on your tax return.
In the case of a dependent, if either
the American Opportunity Credit or the Lifetime Learning Credit is claimed by a taxpayer other than the
student (e.g., a parent), the dependent student may not claim the American Opportunity Credit, and the taxpayer
is treated as paying all eligible expenses for the tax year for American Opportunity Credit
purposes. The
maximum annual American Opportunity Credit is $2,500.
As an alternative to the American Opportunity Credit, eligible taxpayers may elect to exclude from taxable income amounts withdrawn from Education IRAs that are used to pay the taxpayer's,
spouse's, or dependent's qualified education expenses. The income exclusion is not
available in any tax year that a American Opportunity Credit or Lifetime Learning Credit is elected with respect
to a student.
Figure your American Opportunity Credit
on Form 8863.
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Related tax
information about the American Opportunity Credit |
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Academic Scholarships
Educational Assistance Exclusion
Education IRAs
Lifetime Learning Credit
Qualified Tuition Programs
Student Loan Interest Deduction
U.S. Savings Bond Tuition Plans
Tax Credits |
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IRS publications about
the American Opportunity Credit:
For further information refer to IRS Publication 970, Tax Benefits
for Higher Education; IRS Publication 508, Educational
Expenses; IRS Publication 1577,
Applying for Educational Financial Aid; and IRS Publication 520, Scholarships
and Fellowships. Also see IRS Publication
17, Your Federal Income Tax. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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