American Opportunity Tax Credit: Questions and Answers
Q1. Have there been any changes in the past few years to
the tax credits for college expenses?
A. Yes. The American opportunity tax credit, which
expanded and renamed the already-existing Hope
scholarship credit, can be claimed for expenses paid for
tuition, certain fees and course materials for higher
education in 2009, 2010, 2011 and 2012.
Q2. The Hope scholarship credit originally applied only
to the first two years of college. Has that changed?
A. Yes. The American opportunity tax credit can be
claimed for expenses for the first four years of
Q3. How does the American opportunity tax credit differ
from the Hope scholarship credit and Lifetime Learning
A. Unlike the other education tax credits, the American
opportunity tax credit includes expenses for
course-related books, supplies and equipment that are
not necessarily paid to the educational institution. It
also differs from the Hope scholarship credit because it
allows the credit to be claimed for four years of
post-secondary education instead of two.
Q4. How much is the American opportunity tax credit
A. It is a tax credit of up to $2,500 of the cost of
tuition, fees and course materials paid during the
taxable year. Also, 40% of the credit (up to $1,000) is
refundable. This means you can get it even if you owe no
Q5. What are qualified expenses for purposes of
the education tax credits?
A. In general, qualified expenses for the education tax
credits include tuition and required fees for the
enrollment or attendance at an eligible
post-secondary educational institution. To be
creditable, the expenses paid during a taxable year must
relate to: (1) an academic period that begins in the
same taxable year; or (2) an academic period that begins
in the first three months of the following taxable
year. See Publication
970, Tax Benefits for Education.
The following expenses do not qualify:
Room and board.
Student fees unless required as a condition of
enrollment or attendance.
Same expenses paid with tax-free educational
Same expenses used for any other tax deduction,
credit or educational benefit.
Q6. What additional education expenses qualify for the
American opportunity tax credit?
A. For the American opportunity tax credit, qualified
expenses have been expanded to include expenditures for
course materials, as well as tuition and required
fees. For this purpose, the term "course materials"
means books, supplies and equipment needed for a course
of study whether or not the materials are purchased from
the educational institution as a condition of enrollment
or attendance. Some or all of these expenses will be
recorded on Form
1098-T, Tuition Statement. The student should
receive a Form 1098-T from the educational institution
that the student attended. If the student does not
receive a Form 1098-T, the student should contact the
educational institution and request the form.
Q7. Does an expenditure for a computer qualify for the
American opportunity tax credit?
A. Whether an expenditure for a computer qualifies for
the credit depends on the facts. An expenditure for a
computer would qualify for the credit if the computer is
needed as a condition of enrollment or attendance at the
Q8. How is the American opportunity tax credit
A. Taxpayers will receive a tax credit based on 100
percent of the first $2,000, plus 25 percent of the next
$2,000, paid during the taxable year for tuition, fees
and course materials.
Q9. How will the American opportunity tax credit affect
my income tax return?
A. You will be able to reduce your tax liability by one
dollar for each dollar of credit for which you're
eligible. If the amount of the American opportunity tax
credit for which you're eligible exceeds your tax
liability, the excess will be refunded to you up to the
lesser of 40 percent of the credit or $1,000.
Q10. Who can claim the American opportunity tax credit?
A. Generally, a taxpayer whose modified adjusted gross
income is $80,000 or less ($160,000 or less for joint
filers) can claim the credit for the qualified expenses
of an eligible student. The credit is reduced if a
taxpayer’s modified adjusted gross income exceeds those
amounts. A taxpayer whose modified adjusted gross income
is greater than $90,000 ($180,000 for joint filers)
cannot claim the credit.
Q11. What is "modified adjusted gross income" for the
purpose of the American opportunity tax credit?
A. It is the taxpayer's adjusted gross income increased
by foreign income that was excluded, and by income
excluded from sources in Puerto Rico or certain U.S.
Q12. Who is an eligible student for the American
opportunity tax credit?
A. For the American opportunity tax credit, an eligible
student is a student who: (1) is enrolled in a program
leading toward a degree, certificate or other recognized
post-secondary educational credential; (2) has not
completed the first four years of post-secondary
education as of the beginning of the taxable year; (3)
for at least one academic period is carrying at least ½
of the normal full-time work load for the course of
study the student is pursuing; and (4) has not been
convicted of a felony drug offense.
Q13. If a student was an undergraduate during the first
part of the taxable year and became a graduate student
that same year, will the student qualify for the
American opportunity tax credit?
A. If a student has not completed the first four years
of post-secondary education as of the beginning of the
taxable year, and has not claimed the Hope scholarship
credit and/or the American opportunity tax credit for
more than four taxable years, the student can claim the
American opportunity tax credit for qualified expenses
paid during the entire taxable year.
Q14. I'm just beginning college this year. Can I claim
the American opportunity tax credit for all four years I
A. The American opportunity tax credit is available for
amounts paid through only 2012, unless Congress extends
the credit. If Congress does not extend the credit, you
may be eligible for the Hope scholarship credit or the
Lifetime Learning credit for any tuition and fees
required for enrollment you pay after 2012.
Q15. How does a taxpayer claim an education tax credit?
A. A taxpayer claims an education tax credit by
8863, Education Credits, and attaching it to Form
1040 or 1040A.
Q16. Can I claim the tuition and fees tax deduction in
addition to claiming the American opportunity tax
A. No. You cannot claim the tuition and fees tax
deduction in the same taxable year that you claim the
American opportunity tax credit or the Lifetime Learning
credit. You must choose between taking an education tax
credit or taking the deduction for tuition and fees. You
also cannot claim the tuition and fees tax deduction if
anyone else claims the American opportunity tax credit
or the Lifetime Learning credit for you in the same
taxable year. A tax deduction of up to $4,000 can be
claimed for qualified tuition and fees paid. Although
the credit will usually result in greater tax savings,
taxpayers should calculate both the tax credit and the
deduction on the tax return to see which is most
beneficial. Often, tax software will automatically
compare the tax result, from taking the education credit
or taking the deduction, for you.
Q17. Is there a benefit that applies to college savings
plans (commonly known as 529 Plans)?
A. Yes. During 2009 and 2010, a qualified, nontaxable
distribution from a Section 529 plan includes the cost
of the purchase of any computer technology or equipment
or Internet access and related services, if such
technology, equipment or services are to be used by the
beneficiary of the plan and the beneficiary's family
during any of the years the beneficiary is enrolled at
an eligible educational institution.
Q18. What is Form 1098-T, Tuition Statement, and who
A. Educational institutions are required to file a Form
1098-T, Tuition Statement, with the IRS and to
provide the a copy of the form to the student, for each
enrolled student for whom there is a reportable
transaction. A reportable transaction includes payments
received, amounts billed or refunds made for tuition and
related expenses. For the Form 1098-T to be accurately
prepared, the educational institution must address boxes
8 and 9. Note that box 8 will be checked if the student
was enrolled at least half-time, and box 9 will be
checked if the student was enrolled as a graduate
student. There are some exceptions where an educational
institution is not required to file and provide the Form
1098-T. These exceptions include:
Courses for which no academic credit is offered,
even if the student is otherwise enrolled in a
Nonresident alien students, unless the student
requests the institution to file Form 1098-T.
Students whose tuition and related expenses are
waived entirely or paid entirely with scholarships
Students whose tuition and related expenses are
covered by a formal billing arrangement with the
student’s employer or a government agency such as
the Department of Veterans Affairs or the Department
Q19. How do I know if my school is an eligible
A. A student can check with the educational
institution. However, this link from the Department of
shows all accredited schools. If your school is found
using this link, then it is an eligible institution and
you can claim the American opportunity tax credit.
Q20. I received a letter from the IRS questioning my
claim for the American opportunity tax credit for tax
year 2009. What do I do?
A. You received a letter because the IRS did not receive
a Form 1098-T or the educational institution did not
accurately prepare the Form 1098-T for the student.
Educational institutions are required to file a Form
1098-T, Tuition Statement, with the IRS and to provide a
copy of the form to the student, for each enrolled
student for whom a reportable transaction is made. A
reportable transaction includes payments received,
amounts billed or refunds made of tuition and related
Follow the instructions on the letter. Contact the
student's educational institution to request a copy or
corrected copy of Form 1098-T for tax year 2009.
Q21. Can F-1 Visa students claim the AOTC?
A. For most alien individuals present in the U.S. on
Student Visa, the answer is no. Generally
speaking, the time spent by an alien individual
studying in the U.S. on an F-1 Student Visa would
not count toward determining whether he or she was a
resident alien under the substantial presence test
for federal tax purposes. Thus, if you are an alien
individual with an F-1 Student Visa, you are
probably a nonresident alien. In general, if you are
a nonresident alien for any part of the year, you do
not qualify for the AOTC.
However, your parents may qualify for the credit
even if you are a nonresident alien student if they
claim you as a dependent on their tax return. If you
are a U.S. resident filing Form 1040, and your
parents do not claim you as a dependant, and you
meet all of the other requirements for the credit,
you may qualify for the credit.
Q22. What if the student’s return was incorrectly
prepared and filed by a professional tax preparer?
A. The IRS urges you to choose a tax preparer
wisely. You are legally responsible for what’s on
your tax return, even if it is prepared by someone
else. For more information, read IRS’ Tips
for Choosing A Tax Return Preparer.