The American Opportunity Tax Credit (AOTC) can be claimed for qualified education expenses incurred during a student’s first four years of postsecondary education. The credit is worth up to $2,500 per eligible student each year and is calculated as 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. Up to 40% of the credit (a maximum of $1,000) may be refundable, while the remainder is nonrefundable.

The credit is claimed on IRS Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Taxpayers must receive Form 1098-T from an eligible educational institution to claim the credit.

Generally, you can claim the American Opportunity Credit if:

• You pay qualified higher education expenses,
• You pay the education expenses for an eligible student, and
• The eligible student is yourself, your spouse, or a dependent you claim on your tax return.

Eligible Student

To be eligible for the American Opportunity Credit, the student must have been enrolled at least half-time in a program leading to a degree or other recognized educational credential for at least one academic period beginning in the year of the return.

A student may only claim the credit for a total of four tax years (including years in which the Hope Credit was claimed), and only for the first four years of postsecondary education (usually freshman, sophomore, junior, and senior years of college).

Any conviction for felony drug possession or distribution makes the student ineligible.

Qualified Education Expenses

Qualified education expenses include tuition, required fees, and course materials such as books, supplies, and equipment needed for enrollment or attendance, even if the materials are not purchased from the educational institution. Expenses for room and board, transportation, medical insurance, and similar personal expenses do not qualify. Materials do not need to be purchased from the educational institution to qualify.

Additional Information

You may not claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student in the same tax year. For more information on the differences between these credits, see Form 8863 – Education Credits.

TaxAct will determine which education benefit is most advantageous for you based on the data entered on your return (such as income, filing status, amount of qualified expenses, etc.). See Education Credits & Deductions – Enter, Review, Modify for instructions on how to enter or modify your education information in TaxAct, or to compare the education benefits in your return.

Related Links

• Lifetime Learning Credit
• Publication 970 Tax Benefits for Education
• American Opportunity Tax Credit: Questions and Answers

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