#TaxCreditCollection – The American Opportunity Tax Credit

February 13, 2017

Education is essential to enjoy a successful career in any industry. Obtaining a degree from a college, university, or technical school can also come with a large price tag, especially for out-of-state tuition.

In Part 4 of our #TaxCreditCollection Series, we dive into the American Opportunity Tax Credit, how much it can help reduce your education-related expenses, and who qualifies to claim it.

What Is The American Opportunity Tax Credit?

The American Opportunity Tax Credit is a partially refundable federal tax break that can be applied to the expenses incurred in the first 4 years during which an individual attends an institution of higher education.

Unlike a tax deduction that reduces taxable income, this tax credit reduces the amount of tax owed.

How Much is the American Opportunity Tax Credit Worth?

The current value of the American Opportunity Tax Credit is up to $2,500 per qualifying student. Rather than being a credit you can only take advantage of one time, the full value of the AOTC may be claimed every year for up to 4 years.

It’s also worth noting that 40% of the credit is refundable.

Eligible Education Expenses

Remember that this tax credit may only be applied to qualifying education-related expenses that are incurred by a student pursuing some form of higher education. In addition, you cannot claim this credit if you are claiming any other tax credits for higher education purposes.

The American Opportunity Tax Credit can be used for course materials, which include:

  • Textbooks, both printed and electronic
  • Supplemental materials, i.e. workbooks, software, etc.
  • School supplies, i.e. folders, binders, calculators, etc.
  • Other items students need for their coursework
  • Required student activity fees
College student sitting on textbooks

The American Opportunity Tax Credit allows college students to reduce their tax bills from the IRS.


Who Can Claim the American Opportunity Tax Credit?

The tax credit can be claimed on the income tax return of an individual taxpayer, a taxpayer’s spouse, or the dependent of a taxpayer, such as his or her child enrolled in college.

Like other tax credits, this credit on education expenses has some restrictions on who can actually claim it from an income standpoint when filing an income tax return with the IRS each year.

The full amount of the American Opportunity Tax Credit is currently available to individuals whose modified adjusted gross income levels are up to $80,000 a year and $160,000 for married couples who file their taxes jointly. A reduced amount of the credit is available to individuals with a MAGI of up to $90,000 and joint filers who earn up to $180,000. The credit is completely phased out for earners whose income levels exceed these amounts.


Learn about more IRS tax credits for education by teaming up with 1-800Accountant. Call 1-800-222-6868 or check out www.1-800Accountant.

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