Its no secret college is expensive: books, housing, supplies, equipment, and tuition can add up. This is especially true if you are footing the bill for your own education or are paying for your child’s education without grant assistance.
College tuition alone has outpaced inflation by 3.1% since 2008, making college costs even more of a strain for working individuals and families.
The American Opportunity Tax Credit (AOTC) can help take the edge of college expenses. Here’s how it works: you can deduct up to 100% of the first $2,0000 of college expenses, with a 25% credit on the second $2,000 (max $2500.00) for each student (or for yourself) for up to four years.
How Will I Know If I’m Eligible For The AOTC?
You or your dependent student are eligible if:
- Enrolled at least part-time in a U.S.department of Education-approved school or program (generally any school or program that participates in the federal financial aid program). One way to discover this is if you receive a 1098-T form in January.
- Eligible expenses include: Books, tuition, supplies and equipment (yes, that new laptop definitely counts).
However, housing expenses (on or off campus), transportation and health care are not eligible for consideration under this credit.
If you are receiving tuition assistance from your employer, tax-free fellowships or scholarships, you are not eligible to claim this credit.
At the same time, if you’re footing the bill for school with your credit card, you can still claim the credit. Simply add the applicable credit card statements to your tax receipts.
What Are The Income Guidelines For The AOTC?
- If your Maximum Adjusted Gross Income (MAGI) is $80K for a single adult, you can claim the maximum amount of the credit, and the same applies for married couples filing jointly: $160,00/year.
- If your income exceeds those limits, you can still claim the credit, but you will only receive a portion of that credit.
- If you’re single and your income is more than $80,000 but less than $90,000, you can claim partial credit.
- For married students, incomes over $160,000 but less than $180,000 fall within the parameters for claiming partial credit.
Hold onto to all receipts for eligible expenses: tuition, books, supplies, and equipment. They will come in handy as you itemize your education-related expenses. As you or your tax pro file your taxes, you’ll need to attach IRS Form 8863 in order to claim the AOTC.
College expenses can be a stretch for many working adult learners or families with college-age children. The American Opportunity Tax Credit can help ease the strain by offering full or partial credit for college costs up to $2500.00 per year per student.