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 (chapter 4).

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.

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.

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.

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" are defined on this page. "Eligible students" are defined later under Who Is an Eligible Student. A "dependent for whom you claim an exemption" is defined later under Who Can Claim a Dependent's Expenses.

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

Who Cannot Claim the Credit(p10)

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