American Opportunity Tax Credit - Explained
What is the American Opportunity Tax Credit?
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What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) is a type of credit that helps students and households pay post-secondary education expenses. This is a credit for qualified education expenses paid for eligible students during the first four years of their higher education (post-secondary) education. Individual taxpayers that have students that are dependent on them can also claim the AOTC. Taxpayers or students can benefit from the AOTC. eligible students can get a tax credit up to $2500 on the first $4000 paid as education expenses.
How Does the American Opportunity Tax Credit Work?
The American Opportunity Tax Credit (AOTC) is contained in Section 1004 of the American Recovery and Reinvestment Act of 2009. This tax credit provides relief for the education expenses of students in the first four years of post-secondary education. This credit covers about two-thrid of the education expenses of students in universities while those in colleges have access to free education with the aid of the AOTC. The AOTC was introduced in 2009 by Barrack Obama, a former president of the United States, this tax credit was scheduled to last till December 2017 but as of 2017, the tax credit did not change even under the 2017 Tax Cuts and Jobs Act.
Maximum American Opportunity CreditClaim
The maximum amount an eligible student can claim as the American Opportunity Tax Credit is $2500 of the first $4000 spent as eduction expenses. This tax credit relieves households of the expenses attributed to the post-secondary education of eligible students for the first four years of the education. For instance, if an eligible student spends $2000 on college entrance fee and purchase of materials, he can claim 100% of the amount spent, which means such a student as $500 left as a tax credit. This can be claimed on the next $2000 spent as education expenses. Unlike other ta credits that are non-refundable, AITC is partially refundable up to 40%, this gives an eligible student to still receive 40% of the remaining credit after the tax liability has been reduced to zero.
American Opportunity Credit Eligibility
The eligibility criteria for the American Opportunity Tax Credit (AOTC) are set by the Internal Revenue Service. These eligibility criteria are;
- The student must be enrolled in an accredited post-secondary institution at least part-time in one academic year.
- The student must be taking degree courses or studying for other educational qualifications.
- He/she must still be enrolled at the institution at the beginning of the tax year.
- The student must not be a convict for a criminal offense.
There are also qualified expenses that the IRS spells out, on which tax credit can be paid, these are tuition fees, expenses for books, supplies, equipment and other materials meant for academic purposes.
American Opportunity Tax Credit vs. Lifetime Learning Credit
There are two major tax credits that students are eligible for in the United States, the first is the American Opportunity Tax Credit(AOTC) while the second is the Lifetime Learning Credit (LLC). The AOTC offers a maximum amount of $2500 of $4000 that can be claimed by students while the LLC offers up to $10, 000 credit. The LLC can be claimed by students in the following categories; part-time, full-time, undergraduate, graduate, or taking classes for a skill acquisition program. Students or taxpayers are not allowed to claim both tax credits in the sale tax year. While the LLC is non-refundable, the AOTC is partially refundable.