american opportunity tax credit

The American Opportunity Tax Credit that was a part of the American Recovery and Reinvestment Act of 2009 is an addition to the Hope Credit that was already available for students. The United States government realizes the need to help students of all ages attend college both through financial aid in the form of grants and through tax credits to help cover the expenses that students do have to pay for. Students attending school will help create more jobs for teachers and college/university staff, and will create a more competitive workforce in the future for employers to rely on. This will result in raised wages and an overall increase in economic health for the country.

The original Hope Credit originally only covered expenses for the first two years that a student spent in school beyond earning their high school diploma. This credit would deduct the first $1,200 in expenses that qualified as tuition or related expenses, such as books, fees, school supplies, etc. Half of the costs between $1,200 and $2,400 could also be deducted from a taxpayer’s taxable income. This made the maximum amount per student each year for the Hope Credit $1,800. You may not have qualified for the Hope Credit if you made more than $60,000 during that tax year, as this credit was not available for individuals who made more than that. For married couples filing jointly, this limit was $120,000.

However, with the American Opportunity Tax Credit that modified the Hope Credit in 2009, there are now more benefits for students and parents. This credit will now cover up to the first four years of post-secondary education, which is double what the original Hope Credit covered. Each year, for the tax years from 2009 to 2012, 100% of the first $2,000 of out of pocket expenses for tuition and fees will be tax deductible. In addition, 25% of the following $2,000 will be tax deductible, making the total amount per student per year that is tax deductible under the American Opportunity Tax Credit up to $2,500. The limit on yearly income to quality for this credit was also increased with the tax credit modification of 2009, raising the limit from $60,000 per year to $80,000 per year for individuals and from $120,000 per year to $160,000 per year for couples filing jointly.

The American Opportunity Tax Credit has been beneficial to many parents and students who have depended on the tax deductions that going to school would give them. For many older adults who have not yet attended school, this modification to the Hope Credit has helped them afford the high costs of going back to school.

It’s important to remember to keep receipts for any education related expenses that you pay for yourself so that you can track them and write these expenses off on your taxes through the American Opportunity Tax Credit. If you do your taxes on your own through printed forms, they will walk you through the steps to find out if you qualify for this credit. Tax software purchased or updated since the credit modification will ask the proper survey questions to ensure that you apply the credit to your taxes if you qualify. And any tax professional will be able to apply this credit to your taxes as he or she prepares them for you.