The American Opportunity tax credit, which replaced the Hope Scholarship credit in 2009, covers more years of college and offers bigger, better benefits to more taxpaying students or their families. Here's how the American Opportunity tax credit and Lifetime Learning credit, another helpful education tax credit, can help offset the rising cost of attending college.
• The American Opportunity Tax Credit (AOTC) reduces your tax bill dollar for dollar up to $2,500 (tax year 2023).
• You get the maximum credit if you spend at least $4,000 in qualifying expenses, including the cost of books as well as tuition and fees.
• The AOTC can be claimed for up to the first four years of qualified post-high-school education.
• Up to 40% of the AOTC (as much as $1,000) can be returned to you as a tax refund even if you don't owe any taxes.
American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC), previously called the Hope College credit, is valued at $2,500 for 2023, up from $1,800 in 2008. Because a tax credit reduces your tax bill dollar for dollar, this basically means Uncle Sam will give you up to $2,500 per year for each qualifying college student in your family.
- Unlike the prior Hope credit, which was available only for a student’s first two years of college, the American Opportunity Tax Credit can be claimed for the first four years of qualified post-high-school education.
- You can get the maximum credit if you spend at least $4,000 in qualifying expenses, which now include the cost of books as well as tuition and fees.
More credit for lower- and higher-income taxpayers
If you're a lower-income taxpayer and the credit is worth more than your tax bill for the year, up to 40% of the credit (as much as $1,000) can be returned to you as a tax refund even if you don't owe any taxes.
There’s also good news for some higher-income taxpayers: The new rules greatly expanded the number of families who qualify for the credit.
- The prior Hope credit was phased out for single taxpayers with Adjusted Gross Income (AGI) of more than $50,000 and it disappeared altogether at $60,000.
- For couples filing jointly, the prior Hope credit phased out between $100,000 and $120,000 of AGI.
- For 2023, the AOTC starts to decrease at $80,000 for single taxpayers and disappears at $90,000.
- For married taxpayers filing jointly, those thresholds are now $160,000 and $180,000.
TurboTax Tip: The Lifetime Learning Credit (LLC) is worth up to $2,000 and even applies to higher education after the first four years of higher education, classes taken less than half-time, or classes not in pursuit of a degree. You can’t take the LLC and the AOTC in the same year for the same student.
Most of the other rules for qualifying for the AOTC are the same as for the Hope credit:
- The student must be enrolled at least half-time in a program pursuing an undergraduate degree or other recognized educational credential.
- You can claim the credit for expenses paid for yourself, your spouse, or a child who's claimed as a dependent on your tax return.
- If the student is claimed as a dependent on a parent’s tax return, the parent gets the credit, regardless of who actually pays the qualifying expenses.
Lifetime Learning credit
The changes in the Hope credit don't affect the Lifetime Learning Credit (LLC), which can apply to higher education often not covered by the American opportunity credit, for education after the four years of higher education, classes taken less than half-time, or classes not in pursuit of a degree.
The Lifetime Learning Credit:
- Is worth up to $2,000 (the credit is actually worth 20% of the first $10,000 of qualifying costs.)
- The income phase-out zone is lower than for the AOTC.
- For 2023, the Lifetime Learning Credit gradually disappears as AGI rises from $80,000 to $90,000 on single returns and from $160,000 to $180,000 on joint returns.
IRS publication 970 has more information about the American Opportunity Tax Credit and the Lifetime Learning Tax Credit.
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