Even during this economic recession, education costs have continued to rise.  Congress knows that these rising education expenses are a large burden on Americans.  They have supplemented the former HOPE credit by issuing the American Opportunity Credit for 2009 and 2010.

Taxpayers can claim the new education credit for themselves, their spouse, or their dependents.  Eligible students must be enrolled at least half-time in their first four years of post-secondary education.  The credit cannot be claimed for the same student in conjunction with the Lifetime Learning Credit.

The maximum credit that can be claimed is $2500 per student.  The American Opportunity Act applies to 100% of the first $2000 in eligible expenses and 25% of the next $2000 in eligible expenses per student. Qualified expenses include tuition and fees as well as textbooks and other materials.  The amount of the credit will stay the same for tax year 2010 as well.

There are phase-out limitations for taxpayers.  A taxpayer’s modified adjusted gross income must be less than $80,000 ($160,000 for married filing joint taxpayers) to receive the entire credit.  This credit is completely phased-out at $90,000 ($180,000 for married filing joint taxpayers).  An advantage of the new credit is that it is 40% refundable for taxpayers whose credit amount exceeds their current tax liability.

Parents whose income exceeds the phase-out limit may want to consider waiving the dependency exemption for their eligible student.  The student would then be able to offset their taxable income and claim the credit.  However, in the case of a parent waiving their dependency exemption, no portion of the American Opportunity Credit would be refundable to the student.

If you have any questions or would like more information, please contact:

Suzy Martin

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