H.R. 106: The American Opportunity Tax Credit Act of 2009
The American Opportunity Credit, a component of the American Recovery and Reinvestment Act, aims to assist college students and their families by lowering the cost of higher education through tax breaks. The American Opportunity Credit is designed to modify the existing Hope Credit, allowing a wider range of students to become eligible for the previously extended tax cuts.
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Significance and Changes
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H.R. 106 makes a few significant changes to the Hope Credit for college students. The income eligibility requirements have been altered to allow taxpayers with higher income levels to apply for the credit. The American Opportunity Credit also adds new categories of expenses that can be claimed for deduction. Another large change is students' ability to file for the credit for four years, rather than the two year limit imposed by the Hope Credit. The maximum annual deduction allowed under the Opportunity Credit, as of 2010, is $2,500.
Personal Eligibility
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The American Opportunity Credit extends the income eligibility requirement to $80,000 per individual or $160,000 for married couples who file their taxes jointly. The IRS uses the modified adjusted gross income figure, which takes into account all income from foreign sources on a pre-tax basis, to determine eligibility. Students in their early twenties are very likely to fall into this income category, ensuring that the credit is available to the people it is meant to serve. Working adults going back to college often fall into this category as well, relieving some of the burden of education expenses.
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Eligible Expenses
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The original Hope Credit specified that "qualified tuition and related expenses" are eligible for deduction. The American Opportunity Credit expands the range of eligible expenses to include required course materials such as textbooks, supplemental reading materials, tools and laboratory equipment. Since the credit is capped off at $2,500, however, students attending more expensive institutions may find that tuition expenses meet or exceed the limit.
Applying
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To apply for the American Opportunity Credit on your income taxes, complete and submit IRS Form 8863 along with your next income tax return. Form 8863 is used for three separate education credits; use Part One to apply for the Opportunity Credit. Simply fill in your name and social security number in boxes A and B, then calculate your total allowable credit in boxes C, D, E and F. You can download the form at the IRS website.
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References
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