The expenses covered under the AOC program vary depending on the institution you attend and your qualifications. Generally, AOC expenses include tuition, fees and course materials such as textbooks and other supplies. Under the AOC program eligible expenses also include any materials the school requires as a condition of enrollment. For example, if a school requires you to purchase a computer, the cost of the computer would qualify as an AOC expense.
The American Opportunity Tax Credit encourages higher learning by providing a tax credit for qualified educational expenses. The Internal Revenue Service offers the AOC credit to help taxpayers with the growing expenses involved in attending a college, university or other higher educational institution. By providing this tax credit, higher education becomes more affordable for more people.
Value of the Credit
Before the IRS offered the AOC credit, the American Recovery and Reinvestment Act offered a tax credit of up to $1,800 for the first two years of higher education expenses. The AOC, now called the Hope Credit, has added an additional $700 for a total of $2,500 per year. Additionally you can take the AOC credit for a total of four years, making the total available credit under this program $10,000.
Most taxpayers can take advantage of the Hope Credit. If your modified adjusted gross income is $80,000 or less for an individual and $160,000 for joint returns, you can claim this tax credit. If your income is higher than these maximums, you can still qualify for the credit, but you will not receive the full amount. You will instead receive a prorated credit based on your actual adjusted gross income level.
The IRS allows you to use 100 percent of the total amount of your eligible credit to lower your tax liability. If the amount of your credit exceeds your total tax liabilities, you can receive a tax refund of up to 40 percent of the eligible credit. You can claim the credit using IRS Form 8863, which you attach to your regular Form 1040.
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