TurboTax / Tax Calculators & Tips / All Tax Guides / Tax Deductions and Credits / What is the American Opportunity Tax Credit?

What is the American Opportunity Tax Credit?

Updated for Tax Year 2015


OVERVIEW

The American opportunity credit allows taxpaying students the opportunity to settle the cost of attending college. The credit offers greater tax savings than a tuition deduction since it reduces the tax you owe on a dollar-for-dollar basis rather than just reducing the amount of income subject to tax. However, there are several requirements for eligibility.


Eligible students for the American opportunity tax credit

An eligible student is a person who has not completed four years of schooling, enrolls in at least one academic semester during the applicable tax year and maintains at least half-time status in a program leading to a degree or other credential. If the student has ever been a state or federal criminal because of a drug conviction, then he/she isn’t eligible for the tax credit.

Qualified Expenses for the American opportunity tax credit

As long as you’re paying the tuition and fees to an eligible educational institution then you can include the credit. But 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.

You can include the cost of books, supplies and equipment the student purchases that relate to the program of study when you calculate the credit.

Paying School Expenses for the American opportunity tax credit

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 and other non-taxable assistance you receive other than gifts and inheritances. The credit does not cover the expense you incur for room, board, transportation or medical insurance.

Calculating the American opportunity tax credit

Only one American opportunity credit is available per eligible student each tax year. If you have two dependents who are eligible students, you may not claim a different educational tax benefit for one student if you claim the American opportunity credit for the other student; you have to claim the same credit for both dependents. Furthermore, you can’t claim more than one tax benefit per year for each student.

The credit amount is equal to 100 percent of the first $2,000 of qualified expenses plus 25 percent the expenses in excess of $2,000. However, the maximum annual credit per student is $2,500.

Claiming the American opportunity tax credit

Either the student or another taxpayer who claims the student as a dependent may take the credit on a personal tax return. You must complete the relevant sections of IRS Form 8863 and attach it to a personal income tax return to claim the credit.

The credit begins to phase out for single taxpayers who have adjusted gross income between $80,000 and $90,000 and for joint tax filers when adjusted gross income is between $160,000 and $180,000. The credit is unavailable to taxpayers whose adjusted gross income exceeds the $90,000 and $180,000 thresholds.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or efile and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal efile of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • Benefit Assist: After you file, TurboTax automatically shows you a full list of government benefits you may qualify for, like Food Stamps or reduced phone & utilities. Plus, we help you apply, saving you time and making it easier than ever to get more money! Estimate based on calculation of Benefit Assist users from tax year 2013 and published reports of average benefit and savings amounts from federal and state programs. Benefit Assist users who received one or more federal or state benefits received on average $576 (based on survey March-June 2015). Actual amounts and qualifications based on your individual situation; some individuals will not qualify. Feature may not be available for all customers.