Furthering the education of yourself and your children means making a wonderful investment in the future of your family. The cost of education, however, can be overwhelming for some families, especially when economic recovery is slow. The U.S. government realizes this fact and has taken steps to help provide relief through tax credits. In 2009, the American Recovery and Reinvestment Act enhanced some of the features of the Hope Scholarship Credit, thereby creating the American Opportunity Tax Credit. This tax credit expanded some of the requirements of eligibility and increased the limits previously provided by the Hope Scholarship Credit.
The American Opportunity Tax Credit helps individuals and families who funded their education with their own money or through loans. The tax credit can be claimed for any student enrolled in an eligible institution of higher education at least part-time. Eligible institutions include, but are not limited to, community colleges, vocational schools, colleges, and universities. Previously, the Hope Scholarship Credit could only be claimed for tuition. With the American Opportunity Tax Credit, tuition remains an eligible expense, along with books and any other materials needed for enrollment in school.
The Hope Scholarship Credit allowed for taxpayers to claim a maximum credit of $1,800 for each eligible student. The enhancements to the new American Opportunity Tax Credit raised the maximum credit to $2,500. This claim represents the first $2,000 of eligible educational expenses plus 25% of the next $2,000 in expenses. Also, of the total $2,500 that can be claimed, $1,000 of it is refundable. Individuals with income of $80,000 or less are eligible to claim the tax credit. Married couples with income of $160,000 or less can claim the credit as well. For incomes above these limits, the tax credit begins to be phased out.
Taxpayers can claim the American Opportunity Tax Credit for each of the first four years of college. They can also claim the tax credit for each dependent that is an eligible student. This is very helpful for households that have more than one child in college at the same time. The American Opportunity Tax Credit will be in existence until 2012. So, if you’re eligible, make sure that you take advantage of your chance to claim the credit. It may reduced the amount of taxes you owe and even put a little money back into your pocket.