For 2009, there are three tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the American opportunity credit (this chapter), the Hope credit
(chapter 3), and the lifetime learning credit
This chapter explains:
- Who can claim the American opportunity credit,
- What expenses qualify for the credit,
- Who is an eligible student,
- Who can claim a dependent's expenses,
- How to figure the credit,
- How to claim the credit, and
- When the credit must be repaid.
For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student.
A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Forty percent of the American opportunity credit may be refundable. This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you.
Your allowable American opportunity credit may be limited by the amount of your income. Also, the nonrefundable part of the credit may be limited by the amount of your tax.
You can choose the education benefit that will give you the lowest tax. You may want to compare the tuition and fees deduction (chapter 7)
to one or more of the education credits.
See Table 2-1
for the basics of the new credit. The details are discussed in this chapter.
For each student, you can elect for any year only one of the credits. For example, if you elect to take the American opportunity credit for a child on your 2009 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2009.
If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both.
If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and lifetime learning credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year.
However, you cannot claim the American opportunity credit for one student and the Hope credit for another student in the same year. If you want to claim either of these credits for 2009, you must use the same credit (American opportunity or Hope) for all eligible students. And, in order to claim the Hope credit (see chapter 3
) for any student, at least one of the students must qualify under the rules for the Midwestern disaster areas. None of the requirements in this paragraph will prevent any eligible student from claiming the lifetime learning credit.
There are several differences between these three credits. For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope credit for that student. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between the three credits are shown in Appendix B
near the end of this publication.
Table 2-1. Overview of the American Opportunity Credit
| Maximum credit ||Up to $2,500 credit per eligible student |
| Limit on modified adjusted gross income (MAGI) ||$180,000 if married filling jointly; $90,000 if single, head of household, or qualifying widow(er)|
| Refundable or nonrefundable ||40% of credit may be refundable; the rest is nonrefundable|
| Number of years of postsecondary education ||Available ONLY for the first 4 years of postsecondary education|
| Number of tax years credit available ||Available ONLY for 4 tax years per eligible student (including any year(s) Hope credit was claimed)|
| Type of degree required ||Student must be pursuing an undergraduate degree or other recognized education credential|
| Number of courses ||Student must be enrolled at least half time for at least one academic period that begins during the tax year|
| Felony drug conviction ||No felony drug convictions on student's records|
| Qualified expenses ||Tuition and fees required for enrollment. Course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify.|
| Payments for academic periods ||Payments made in 2009 for academic periods beginning in 2009 and in the first 3 months of 2010|
The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return.taxmap/pubs/p970-003.htm#en_us_publink1000204325
Generally, you can claim the American opportunity credit if all four of the following requirements are met.
- You pay qualified education expenses of higher education.
- You pay the education expenses for an eligible student.
- The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
- You choose not to claim the Hope credit for any student in 2009.
Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.
You may find Figure 2-1
, on the next page, helpful in determining if you can claim an American opportunity credit on your tax return. taxmap/pubs/p970-003.htm#en_us_publink1000204332
You cannot claim the American opportunity credit for 2009 if any of the following apply.
- Your filing status is married filing separately.
- You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses, later.
- Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit.
- You (or your spouse) were a nonresident alien for any part of 2009 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
- You claim the lifetime learning credit or a tuition and fees deduction for the same student in 2009.
- You claim the Hope credit for any student in 2009.