It’s August. The Fall semester of college starts at many universities this month. Although it is not as generous as the first time homebuyer’s credit or the cash for clunkers vouchers for buying a new car, the American Recovery and Reinvestment Act of 2009 expanded the credit allowed for higher education expense. Technically a modification and expansion of the Hope Scholarship Credit, the American Opportunity Credit allows a credit for qualified tuition and expenses paid in 2009 and 2010 of up to $2,500. The credit equals 100% of the first $2,000 paid for qualified tuition and related expenses and 25% of the second $2,000 paid.
Where the Hope Credit was limited to the first two years of post-secondary education, the American Opportunity Tax Credit is allowed for the first four years of post-secondary-education.
The original Hope Credit was allowed only on tuition and fees paid. For 2009 and 2010, course materials are included with tuition and fees.
The credit is not allowed to individuals over certain income levels. For unmarried individuals, the credit phases out starting when your adjusted gross income reaches $80,000 and is complete disallowed when your adjusted gross income surpasses $90,000. For married individuals filing jointly, the income levels are $160,000 and $180,000, respectively.
40% of the credit will be refundable. In other words, up to $1,000 will be refunded to you even if you owe no income tax.
What didn’t change is the credit is allowed on a per student basis, you must be taking at least 1/2 the normal full-time work load, you can’t be married and file separate returns, and the student must be your dependent.
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