American Opportunity Tax Credit Expands Education Benefits

By December 30, 2009 Individuals

In addition to the Hope Credit and Lifetime Learning Credit, the IRS is adding a new education credit to the mix.  The American Opportunity Tax Credit (AOTC) sweetens the deal and picks up where the Hope Credit and Lifetime Learning Credit leave off.

The AOTC provides a maximum credit for 2009 and 2010 of $2,500.  Unlike the Hope Credit, AOTC is good for your first four years of college education or two years if you have already taken the Hope Credit twice.  AOTC also increases the phase-out range for Adjusted Gross Income.  The Hope Credit phases out for joint filers making between $100,000 and $120,000 and single/head of household filers making between $50,000 and $60,000.  AOTC doesn’t phase out until between $160,000 and $180,000 for joint filers and between $80,000 and $90,000 for single/head of household filers.

Perhaps one of the most significant changes with AOTC is what is considered qualified higher education expenses.  In the past, the Hope and Lifetime Learning Credits only covered tuition and fees.  AOTC covers tuition, fees and course materials.  This means that now books qualify for the credit.  As someone who has had to purchase a $200 Intermediate Accounting book for a class, I certainly can appreciate that.