The American Opportunity Tax Credit - A Major Tax Break for Paying College Tuition
Of all the federal tax credits and deductions available to help offset the college expenses you pay, this one has the potential to put the most money back in your pocket if you are eligible to claim it.
If you pay college tuition for yourself, your spouse, or your dependents, you may be able to trim up to $2,500 per eligible student off your federal tax bill with the American Opportunity Tax Credit (AOTC). Here are a few things you should know about this popular tax credit.
Credit Amount. The maximum credit is $2,500 per year per student. The credit amount is figured using 100% of the first $2,000 of qualified expenses you pay for the student. Qualified expenses include tuition, required enrollment fees, and necessary course materials, but not room and board.
Refundable. The AOTC is refundable. This means that if the amount of your credit exceeds your tax for the year, 40% of the excess (up to $1,000) can be refunded to you.
Income Limits. To claim the AOTC, your modified adjusted gross income (MAGI) must be within certain limits. For purposes of this credit, most people's MAGI is the same as the adjusted gross income (AGI) shown on their tax return.
- If you are a single or head of household filer, your MAGI must be $80,000 or less to claim the full credit. A partial credit is available if your MAGI is between $80,000 and $90,000.
- If you are married and file a joint tax return, your MAGI must be $160,000 or less to claim the full credit. A partial credit is available if your MAGI is between $160,000 and $180,000.
You cannot claim this credit if your filing status is married filing separately or if you are listed as a dependent on another person's tax return.
Eligible Students. The student must also meet certain criteria for you to claim the credit. Generally, the student must be pursuing a degree or other recognized education credential, be enrolled at least half-time for at least one academic period during the year, and not have a felony drug conviction. The school can be a college, university, trade school, or other post-secondary educational institution that is eligible to participate in a federal student aid program.
First Four Years Only. The AOTC can only be claimed for the student's first four years of post-secondary education. If your student is beyond the first four years or does not meet the criteria for an eligible student, take a look at the Lifetime Learning Credit. Although its income limits and maximum credit are lower than the AOTC, the Lifetime Learning Credit can generally be claimed for an unlimited number of years and the student can be enrolled in as few as one or two courses.
Copper Leaf Financial is a fee-only, fiduciary firm and we can help you by providing advice on all financial matters. With offices in Williston and Rutland, Vermont, we develop a customized wealth management (financial) plan designed to integrate every aspect of your financial life. This is "true wealth management" - a holistic, all-encompassing approach that goes beyond just investment advice. Call us today at (802) 878-2731 to schedule a strategy session and begin building your road map to financial success.
Article published in Copper Leaf Financial publication Eye on Money - March 2018 issue.