The American opportunity tax credit (AOTC) is a credit for
qualified education expenses paid for an eligible student for the first four
years of higher education. You can get a maximum annual credit of $2,500 per
eligible student. If the credit brings the amount of tax you owe to zero, you
can have 40 percent of any remaining amount of the credit (up to $1,000)
refunded to you.
The amount of the credit is 100
percent of the first $2,000 of qualified education expenses you
paid for each eligible student and 25
percent of the next $2,000 of qualified education expenses you paid
for that student. But, if the credit pays your tax down to zero, you can have
40 percent of the remaining amount of the credit (up to $1,000) refunded to
you.
You cannot claim a credit for education expenses paid with
tax-free funds. You must reduce the amount
of expenses paid with tax-free grants, scholarships and fellowships and other
tax-free education help.
Finally, be aware of the income limits for AOTC:
- To claim the full credit,
your MAGI, modified adjusted gross income, must be $80,000 or less
($160,000 or less for married filing jointly).
- You receive a reduced amount
of the credit if your MAGI is over $80,000 but less than $90,000 (over
$160,000 but less than $180,000 for married filing jointly).
- You cannot claim the credit
if your MAGI is over $90,000 ($180,000 for joint filers).
