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american opportunity credit

The American Opportunity Tax Credit (AOTC) is a partially refundable federal education tax credit worth up to $2,500 per eligible student per year for the first four years of college, making it one of the most valuable college tax breaks available to many families.

What the AOTC Is

  • The AOTC helps offset undergraduate tuition and required course expenses for an eligible student in their first four years of post‑secondary education.
  • Up to 40% of the credit (up to $1,000) can be refundable, meaning you may get money back even if you owe no tax, while the rest is nonrefundable and can only reduce your tax to zero.

How the Amount Is Calculated

  • The maximum $2,500 credit per student comes from 100% of the first $2,000 in qualified education expenses plus 25% of the next $2,000 in those expenses.
  • “Qualified expenses” for AOTC include tuition, required fees, and course materials such as books, supplies, and equipment needed for enrollment, but not room and board, transportation, or medical insurance.

Who Can Claim It

  • The credit is for an eligible student who is: in the first four years of post‑secondary education, enrolled at least half‑time for at least one academic period during the year, pursuing a degree or recognized credential, and without any felony drug conviction.
  • The person claiming the credit (student or parent) generally must pay the expenses and cannot be over the income limits, and the student usually must receive Form 1098‑T from an eligible educational institution.

Income Limits (Phase‑Out)

  • For recent tax years, you can claim the full credit if your modified adjusted gross income (MAGI) is $80,000 or less (single) or $160,000 or less (married filing jointly).
  • The credit phases out between $80,000–$90,000 for single filers and $160,000–$180,000 for joint filers, and is unavailable above those thresholds.

How to Claim the AOTC

  • You claim the AOTC by completing Form 8863, Education Credits , and attaching it to your federal income tax return, using information from Form 1098‑T and the school’s EIN.
  • Tax software or a professional can help ensure you do not “double dip” by using the same expenses for other credits or 529 plan tax‑free distributions, which is a common pitfall with education benefits.

Bottom line: The American Opportunity Tax Credit is a powerful way to cut the cost of the first four years of college, but it comes with strict rules on who qualifies, which expenses count, and how income affects the benefit.

Information gathered from public forums or data available on the internet and portrayed here.