What Is the American Opportunity Tax Credit?
The American Opportunity Tax Credit offers a unique opportunity to save on your taxes and reduce the cost of attending college. Qualifying individuals can receive up to $2,500 to help cover expenses like tuition, books, and supplies. To take advantage of this tax credit, learn more about the requirements, how to claim it, and the income limits that apply.
The One Big Beautiful Bill that passed includes permanently extending tax cuts from the Tax Cuts and Jobs Act, including increasing the cap on the amount of state and local or sales tax and property tax (SALT) that you can deduct, makes cuts to energy credits passed under the Inflation Reduction Act, makes changes to taxes on tips and overtime for certain workers, reforms Medicaid, increases the Debt ceiling, and reforms Pell Grants and student loans. Updates to this article are in process. Check our One Big Beautiful Bill article for more information.
Key Takeaways
- To be eligible for the American Opportunity Tax Credit, the student must enroll in at least one academic semester during the applicable tax year and must maintain at least half-time status in a program leading to a degree or other credential.
- Qualifying expenses include tuition and fees to an eligible educational institution, as well as purchased items relating to the program of study such as books, supplies, and equipment.
- The credit does not cover costs associated with room, board, transportation, or medical insurance.
- The credit begins to phase out for single taxpayers who have adjusted gross income between $80,000 and $90,000 and joint tax filers when adjusted gross income is between $160,000 and $180,000.
What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit is a federal income tax credit that can help offset certain higher-education costs. The maximum credit is $2,500 per eligible student per year. It's a partially refundable credit – you can get a refund for up to 40% of the credit each year (that is, up to $1,000 per eligible student).
Who is an eligible student for the American Opportunity Tax Credit?
The American Opportunity Tax Credit is only available for qualifying educational expenses for an eligible student who:
- has not completed the first four years of post-secondary education
- enrolls in at least one academic semester during the applicable tax year
- maintains at least half-time status in a program leading to a degree or other credential
- has not been convicted of a felony drug offense
- has a Social Security number valid for employment issued before the due date of your federal tax return (a Social Security number or individual taxpayer identification number (ITIN) was required before the 2026 tax year)
What are qualifying expenses for purposes of the American Opportunity Tax Credit?
Qualified education expenses for which you can claim the American Opportunity Tax Credit include tuition and certain other expenses required for a student's enrollment or attendance at an eligible educational institution, such as the cost of:
- books
- supplies
- equipment
However, the credit does not cover costs associated with:
- room and board
- transportation
- medical insurance
Eligible educational institutions can be more than just colleges and universities. They can also include any post-secondary school that satisfies the requirements to participate in the U.S. Department of Education financial aid program.
The IRS does not require you to reduce qualified expenses by any amount you pay with borrowed funds, such as student loans or credit cards. However, you may not include any amount you receive from:
- tax-free scholarships or fellowships
- federal Pell grants
- tuition grants from an employer
- refunds from the school
- other non-taxable assistance you receive, other than gifts and inheritances
TurboTax Tip:
The credit amount is equal to 100% of the first $2,000 of qualified expenses plus 25% of the expenses in excess of $2,000, with a maximum annual credit per student of $2,500.
How do you calculate the American Opportunity Tax Credit?
The American Opportunity Tax Credit is equal to 100% of the first $2,000 of qualified expenses, plus 25% of the expenses in excess of $2,000. The maximum annual credit per student is $2,500.
However, the credit is gradually phased out if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 for married couples filing jointly). So, the credit is unavailable to taxpayers whose MAGI exceeds the $90,000 (or $180,000) threshold.
Only one American Opportunity Tax Credit is available per eligible student each tax year.
- If you have two dependents who are eligible students, you can claim a different educational tax benefit for one student if you claim the American Opportunity Credit for the other student; you can, but do not have to, claim the same credit for both dependents.
- You can’t claim more than one tax benefit per year for each student.
How do you claim the American Opportunity Tax Credit?
Either the student or another taxpayer who claims the student as a dependent can take the credit on a personal income tax return. You need to complete the relevant sections of IRS Form 8863 and include it with your income tax return to claim the credit.
You must include your Social Security number and the student's Social Security number (if you're not the student) on your tax return. The Social Security numbers must be valid for employment in the U.S. and issued before your tax return is due. (Before the 2026 tax year, only the student's Social Security number or ITIN had to be included.)
In addition, you have to provide the school’s employer identification number (EIN) on Form 8863.
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