Question

what is the American Opportunity credit?

Answer 1

American Opportunity credit also popularly known as American Opportunity Tax Credit (AOTC) is a credit for education expenses paid for an eligible student for the first four years of higher education. A student will get a maximum credit of $2,500 annually. [Note: 40% Refund of such credit can also be claimed with a cap of $1000 i.e. if the tax is Nil and the eligible assessee has incurred a eligible educational expense of $2500, the assessee can claim a refund of $1000 (40% of $2500)]

How is credit determined:

The amount of the credit is 100 percent for first $2,000 of qualified education expenses paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student making the total benefit to $2500.

For Ex: a) Rahul owes $2,000 as tax and he incurred $2,200 towards education expense. He will get a credit of $2,000 and he can claim a refund of $80 (40% of remaining $200)

b) Rahul owes $1,000 as tax and he incurred $2,200 towards education expense. He will get a credit of $1,000 and he can claim a refund of $80 (40% of remaining $200)

Eligibility Criteria

The Students must :

• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have finished the first four years of higher education at the beginning of the tax year
• Be enrolled at least half time for at least one academic period^* beginning in the tax year.
• Be pursuing a degree or other recognized education credential

Expense Eligible:

• Tuition Fees
• Books
• Equipments (For Enrollment Purpose)

Note: Computers are not covered in equipments as the are considered personal expense

These expenses are to be incurred during the tax year or within 3 months of the following year.