Ask Kim
Get a Bigger Tax Break for
College Expenses
The new American Opportunity credit will reduce your tax bill dollar for dollar.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
November 23, 2009
Has the tuition-and-fees federal tax deduction been renewed? If not, what would be the best strategy for me? I usually get a small refund thanks to that deduction.
The tax deduction covering up to $4,000 in tuition and fees still exists, but the American Opportunity Credit, which was introduced as part of the stimulus package, is a better option. It is a turbocharged version of the Hope credit, which the government offered previously, with higher income limits and bigger tax breaks. And it now covers four years of college rather than just the first two. It’s available for 2009 and 2010.
A tax credit, which reduces your tax bill dollar for dollar, is more valuable than a tax deduction, which merely reduces the amount of your income that is taxed. You may qualify for an American Opportunity Credit of up to $2,500 as long as you spend at least $4,000 in tuition and qualified expenses (including fees, books and related course materials). And if your credit exceeds your tax liability, you may receive a refund check (up to $1,000 more than your tax bill). In the past, you could qualify for the Hope credit only if your income was less than $58,000 for single taxpayers or $116,000 for married taxpayers filing jointly. But the American Opportunity Credit bumps up those limits to $90,000 for singles and $180,000 for joint filers.
By contrast, the maximum $4,000 tuition deduction would lower your tax bill by just $1,000 if you were in the 25% federal tax bracket. The tuition-and-fees deduction has lower income limits than the American Opportunity Credit, but it is available for graduate-level expenses not covered by the credit. Individuals with incomes up to $65,000 ($130,000 for married couples) qualify for the full $4,000 deduction. Individuals with incomes between $65,000 and $80,000 (between $130,000 and $160,000 for married couples) are eligible for a $2,000 deduction.
Got a Question? E-mail Kim at askkim@kiplinger.com.
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Reader Comments (63)
Posted by: Robert Jensen at 11/23/2009 03:11:52 PM
Does the "four years of college" refer to four calendar years or four academic years? I am a college senior but have attended college part time meaning. This means I have been attending college more than four calendar years but have not yet completed four academic years. Thank you.
Posted by: Sandy at 11/24/2009 07:52:17 AM
Kim, is the American Opportunity Credit available for graduate school students if you haven't used it for undergraduate. I'm back in grad school now, at age 45, and never used any break when I was an undergrad.
Posted by: Mike McCann at 11/25/2009 03:02:45 PM
Is the cost of driving to grad school classes deductible in the new AOC along with tuition, books etc?
Posted by: Fran Albers-Schoenberg at 11/29/2009 11:55:05 AM
Does this credit only apply to undergraduate tuition or am I also eligible as a graduate student?
Posted by: joy at 12/16/2009 08:22:05 PM
kim, i got a pell plus loans but had to pay 700 out of my sub loans to cover everything how much of that can i claim
Posted by: Kim Lankford at 12/17/2009 06:55:59 AM
Hi everybody, This is Kim Lankford, author of the article, with answers to some more of your questions. You can only use the American Opportunity Credit for the first four years of post-secondary education, which means that unfortunately you can't use this credit for grad school. But grad students can qualify for the Lifetime Learning Credit, which still exists (see IRS Publication 970 at www.irs.gov for details). Transportation to school does not qualify for either credit.
Posted by: Robert at 12/17/2009 04:48:30 PM
Thanks for your answers, Kim. However, I still do not understand whether the AMC covers four calendar years or four academic years. This makes a big difference for me as a part time student. I have already completed more than four calendar years but less than four academic years. Am I eligible to take the credit.
Posted by: Jo Butter at 12/17/2009 05:31:49 PM
My son is a 5th year college senior completing his bachelors degree this year. Can we still claim this credit? Or is it good for 4 calendar years only?
Posted by: Kim Lankford at 12/18/2009 04:39:19 PM
Hi again, this is Kim Lankford. Robert and Jo, I tracked down the answer to your questions. A student's eligibility will be based on the academic year the college considers him or her to be in, says H.R. Rubinsky, senior tax analyst with Thomson Reuters. So if the college considers you to be a senior, then you should be able to qualify for the American Opportunity Credit. You can't, however, claim the Hope Credit and/or American Opportunity Credit for more than a total of four years. To qualify for the credit, you must also be carrying at least one-half the normal full-time work load for the program you're pursuing. Hope this helps!
Posted by: don muehlfelder at 12/26/2009 08:51:09 PM
my daughter is in her third yEAR of college.how does she apply for the 'american opportunity credit' she has a part time job as a waitress?
Posted by: Miranda at 12/28/2009 04:56:25 PM
I get some grant money, but have to take out loans to pay for part of my tuition. Do I qualify for this tax credit?
Posted by: david nelson at 01/03/2010 04:20:13 PM
i am separated from my wife and i am paying for my two boys college tutions,books,etc. Can i deduct any of this from my 2009 income tax?
Posted by: Megan Evans at 01/06/2010 08:32:46 AM
My husband is a student and does not work therefore he will not file taxes and I will be claiming him as a dependent. Will I be able to get this credit? I'm not sure because it says parents or singles... but he is my dependent. Thank you!
Posted by: Eric at 01/06/2010 08:48:27 AM
What if you paid the tuition with a loan? Do you still qualify?
Posted by: Ashley at 01/06/2010 10:26:23 AM
Hi Kim, My husband used his GI Bill to cover his expenses for school so would he/we still qualify for any of these above named credits? I'd appreciate your help. Thanks!
Posted by: Victor in Michigan at 01/06/2010 11:57:22 AM
I am 25 and attending college. My parents do not and have not claimed me for years. Can they still receive this if i live with them, or can I, myself, apply for this or is there something else i can get like this?
Posted by: Alan at 01/06/2010 12:05:40 PM
Thanks Kim. Do I need a 1098-T or other tax forms to apply for this credit? Will universities send these automatically or do I need to ask for them? Thanks!!
Posted by: Laura at 01/06/2010 12:41:13 PM
As a parent, I am a full-time returning student this year. I am taking out student loans and have not started paying them back as of yet. Do I qualify for this?
Posted by: Diane at 01/06/2010 04:15:34 PM
My daughter is in her freshman year of college. She received some financial aid and took out student loans to cover most of her expenses. She paid for her own books and some of her room and board with money she earned babysitting over the summer. Her only "real" job was a seasonable position where she earned about $500 so she won't really file a tax return herself. I helped her with her last R&B payment as well as her meal plan -- a total of about $2300 for her first semester. Is any of this covered? Thanks!
Posted by: Randy at 01/06/2010 04:19:08 PM
What if you spend less than $4,000 on tuition? Can you still apply for this credit? Also, what if the money was given to our son and he spent it on tuition instead of us paying the college directly? Thank you.
Posted by: nick at 01/06/2010 06:04:36 PM
How do loans figure in to the equation here? Do they count as me having paid them? Also, if so, is there a distinction between loan types, for example, subsidized stafford, private loans, etc?
Posted by: Kim Lankford at 01/10/2010 11:02:51 AM
This is Kim Lankford with answers to some more of your questions. Good news for people who asked about the tax credit and student loans -- college costs paid with the proceeds of a loan are generally eligible for the American Opportunity Credit or the lifetime learning credit. The expenses count for the credit in the year that they are paid by the loan, not the year that you pay the loan back. And keep in mind that eligible college expenses now includes tuition, fees and course materials, such as books. You may qualify for a partial American Opportunity credit even if you don't spend $4,000 in eligible expenses for the year -- the actual calculation for the credit is 100% of the first $2,000 you pay for tuition, fees and course materials for the taxable year, plus 25% of the next $2,000 of tuition, fees and course materials. Also, you'll claim the credit by filing IRS form 8863 with your 1040 (available at www.irs.gov). You all have had such great questions about this topic, I'll be writing a follow-up column with a lot more information in the next week. Hope this helps!
Posted by: Cynthia Vassaur at 01/10/2010 11:05:54 AM
My daughter is a freshman in college. My ex-husband and I have agreed to split her tuition, room/board and books. In the past, he has claimed her on his income tax and I claimed our other child. Since we are both paying for her tuition & books - can we both take advantage of the American Opportunity Credit or can only one of us claim it? Your advice is much appreciated.
Posted by: Jim at 01/10/2010 08:50:25 PM
Is there any way that a grandparent can use the American Opportunity Credit for their grandchildren? If not is there any tax program that benefits grandparents saving for their grandchildrens college education if they are still in high school? Thanks
Posted by: Christina at 01/12/2010 08:33:56 PM
I had attended Baker College off and on and received my Associate Degree a few years ago. I just went back to college this year and am a junior in college based in the University going towards my bachelor degree. While I have received the Lifetime Learning Credit while I was going to school previously, I have never received the Hope Credit. Am I eligible to receive the new American Opportunity Credit for this year and next to complete my Bachelor Degree as long as I am a junior or senior in undergraduate school? I know I can not receive the Hope Credit now after receiving the Lifetime Learning Credit, even though some of that was part time. I am now going full time to college to complete my Bachelor Degree. Thank you.
Posted by: Leigh Beshears at 01/13/2010 12:14:40 AM
...I have two children in college. Both attend schools that have mandatory meal plans 12-15 meals per week costing approximately $1500 per semester ($3000 for both, $6000 per year) My daughter is an athlete and rarely eats more than one meal per day in dining room. My son lives on campus and we live two hours away. He has regular classes plus an online course that gives him some flexibility. His last class Friday is at 11:00 and his first class Monday is at 4:00. He usually comes home Friday afternoon and heads back Monday afternoon. Last sememster he ate 80 of his 185 pre-paid meals. It averaged $18.50 per meal. Two chik-fil-a sandwiches count as two meals - $36.00. Both schools say we have to have the plans (both have shared apartment type dorms with fridge and oven) I know these amounts can be added to a students financial aid (mine have scholarships that cover tuition but no financial aid other than stafford loans that we are trying not to use. Can any of meals be deductible or allowable expenses? Thank you.
Posted by: Kim Lankford at 01/14/2010 07:54:11 AM
This is Kim Lankford with some more information about whether the parents or the student are eligible to take the credit. If the parents claim the student as a dependent, then only the parents can take the American Opportunity Credit; if the student isn't claimed as a dependent, then only the student can claim the credit. If your child pays some of the bills with her own money but you still claim her as a dependent on your tax return, then any college bills she pays can count towards your American Opportunity Credit -- in that case, any expenses paid by a dependent are treated as if they were paid by the person claiming the student as a dependent. See IRS Publication 970 at www.irs.gov for details and examples in several scenarios. Hope this helps!
Posted by: Christina at 01/18/2010 06:59:05 PM
I had attended Baker College off and on and received my Associate Degree a few years ago. I just went back to college this year and am a junior in college based in the University going towards my bachelor degree. While I have received the Lifetime Learning Credit while I was going to school previously, I have never received the Hope Credit. Am I eligible to receive the new American Opportunity Credit for this year and next to complete my Bachelor Degree as long as I am a junior or senior in undergraduate school? I know I can not receive the Hope Credit now after receiving the Lifetime Learning Credit, even though some of that was part time. I am now going full time to college to complete my Bachelor Degree. Thank you.
Posted by: Megan at 01/19/2010 02:07:47 PM
Do I qualify for this credit if I am taking classes online full-time?
Posted by: Kim Lankford at 01/20/2010 07:33:41 AM
Jim, this is Kim Lankford with answers to your question about grandparents and the American Opportunity Credit. You can only qualify for the American Opportunity Credit if the student is your dependent. But grandparents may be able to get a state tax break by contributing to a 529 for their grandkids. The rules vary a lot by state -- some states let anyone who contributes to a 529 take the tax break; others only let you deduct your contributions if you are the account owner. In that case, it can pay to open your own 529 for the child even if his parents already have an account -- there's no limit on the number of 529s that can be open for one child, although some states let you have only one plan per beneficiary in that state. And most states only give you the tax break if you contribute to your own state's plan, although five states let you use any state's plan. For more information about the rules, see my Lower Your Taxes With a 529 column on December 14, 2009. Also, for the rules about grandparents and 529 contributions, see my Who Can Deduct 529 Contributions from July 11, 2007 (www.kiplinger.com/columns/ask/archive/2007/q0711.htm)
Posted by: Kim Lankford at 01/20/2010 07:37:48 AM
Hi everybody, this is Kim Lankford. Thanks again for all of your questions! Just wanted to give you a heads up that I've answered several more questions about the American Opportunity Credit in my follow-up column on January 14, Make the Most of Tax Breaks for College Expenses. You may find answers to some of your questions there, too.
Posted by: John at 01/21/2010 05:55:29 PM
Hi Kim, Can I use these credits for a computer I purchased in school. I am going to a vocational school for Computer networking. One of my classes is on online does that matter???
Posted by: Frank at 01/21/2010 11:59:39 PM
Kim is it possible to make corrections to last years (2008) tax filing to claim the deduction unde,r American Opportunity Credit, or Hope credit?
Posted by: Kim Lankford at 01/22/2010 03:05:40 PM
Frank, this is Kim Lankford with information about the tax credit for college costs in 2008. The American Opportunity Credit is only available for 2009 and 2010, so you couldn't have taken it for 2008. But the Hope credit was available then. If you qualified for the credit but didn't take it on your 2008 taxes, then you can still file an amended return and get your money back (see Form 1040X at www.irs.gov). Keep in mind, however, that the Hope credit rules were a lot more restrictive than the American Opportunity Credit rules are -- you could only use the credit for the first two years of college and the income limits were much lower ($116,000 if married filing jointly or $58,000 if single in 2008). Hope this helps you.
Posted by: Kristal at 01/23/2010 04:18:39 PM
Kim, in the spring semester of 2009 I was classified as a 4th year senior, and the fall semester I was classified as a 5th year senior because I took an extra semester to graduate. I received the Hope credit in 2007 and 2008. Am I eligible to apply for the American opportunity credit?
Posted by: Christina at 01/23/2010 09:36:01 PM
Dear Kim, I am a 20 yr old, second year college student at a junior college. I work part time and go to school fulltime, this (2009) year I made about $10,000 and paid $5,000 in school loans. I think my parents have claimed me again on there taxes this year. I was wondering if I am eligible for these credits..? Or since my parents have claimed me I'm not? Thanks Christina
Posted by: Sally at 01/24/2010 04:29:40 PM
My daughter was a full time 5th year senior in 2009. She graduated in May 2009 with her bachelor's degree. Her frosh and soph year I claimed the Hope Credit and her junior and senior year I claimed the Lifetime Credit. For her 5th year, can I claim the AOTC or do I need to claim the Lifetime Credit again?
Posted by: Tammy Dolphin at 01/25/2010 05:12:34 AM
My son is in his 6th year of college and I have previously claimed 2 years of the Hope Credit and 3 years of the Lifetime Learning Credit for him on my taxes. He is now considered independent and I wondered if he can claim the American Opportunity Credit? It says in the instructions that the American Opportunity Credit is for the first four years but, I read somewhere that you could use this credit for 4 years. Would the Lifetime Learning Credit be his only option?
Posted by: Shari at 01/26/2010 12:10:32 AM
My 18 year old daughter and I started college in fall of 2009. We we receive pell grants. Can I still get a deduction or credit on my taxes?
Posted by: Mildred D. at 01/30/2010 03:00:58 AM
THANK YOU!!! SO MUCH
Posted by: frank at 01/31/2010 12:13:34 AM
Kim, silly question but when It comes to the IRS I rather be safe than sorry.... I was a college student (senior) in 2009, (graduated Dec 09) when I file my 2009 taxes in Jan or Feb 2010, do I file as a student? The reason I'm asking is because the last time I did my taxes, in order to qualify for the student credits had to be PRESUING a degree. I have already obtained my degree, but in 2009 I was still a student. I hope I didn't confuse you. Thanks for the help.
Posted by: Nancy at 01/31/2010 12:52:38 PM
Our son (25) is still a dependent and is in his junior year in college. Since we are paying his tuition, would we, the parents, qualify for the American Opportunity Credit if we meet the income guidelines.
Posted by: marilyn dennis at 02/01/2010 09:28:11 AM
I'm a little confused about the American Opportunity Credit. Our daughter is a full time student she received a form1098-T. Do we report this on our tax return information? She doesn't have to file a return.
Posted by: marilyn dennis at 02/01/2010 09:33:30 AM
I read in the article of missed tax deductions that I should remember to add state taxes I owed in 2008 but paid in 2009 to my 2009 state taxes withheld from my paychecks. I am using TurbooTax and I can't find a place to enter that amount. Can you guide me on where to enter it?
Posted by: Traci at 02/01/2010 12:52:21 PM
Can you use the American Opportunity Credit if you have used the Hope Credit in the past? I know there is a limit as to how many times you can use the Hope Credit. Thanks!
Posted by: Mike at 02/02/2010 11:48:39 AM
Will the educational institution send me a 1098T? If so, when should I expect to receive it?
Posted by: Marie at 02/02/2010 01:13:41 PM
Kim, I have two college students, one is a senior & the other is a freshman. My question is, if one receives a full scholarship & financial aide, but I still provide income for extras he may have to pay do I qualify for the American Opportunity Credit or the Lifetime Learning Credit? In addition; my other student is a freshman & I give her the funds to pay for her expenses, do I qualify for any of the credits for her as well? Thank you for your assistance.
Posted by: Bob at 02/06/2010 09:15:37 PM
Hi Kim, My question is related to the "four years of college" specification, and graduate school. I haven't seen the following situation addressed. My daughter completed her undergraduate studies in 2.5 years (from Sept 2006 thru Dec 2008). In 2009 she attended graduate school full time. So for her, 2009 was her fourth calendar year of post-secondary study, but she was a grad student. Does she qualify for the American Opportunity Credit? Thanks, Bob
Posted by: Rodney at 02/09/2010 02:39:39 PM
Kim, I have a High School Senior who has taken several college level courses during the 2008,2009-10 school years, with a cost of approx. 750.00. Do we qualify for any of the credits you are speaking of?
Posted by: l. wingo at 02/09/2010 04:59:28 PM
i lease a car for my daughter going to college. does this qualify? also, if you have loans out over $4,000 for the year does that count?
Posted by: Mitch at 02/15/2010 10:45:51 PM
Kim, I am confused. I am in a situation where it took me 5 years to complete college. My last semester was spring 2009 and since then I have entered the work force. My parents will not be claiming me in 2009 and neither of us have ever used the Hope tax credit or American Op. I spoke with my schools registrars office and they stated that I was considered a "senior" in my 5th year. I took 17 credit hours in the spring, but was not registered in the Fall. Also, I was sent a 1098T from my school. Am I able get the American Opportunity tax credit?
Posted by: Andres at 02/18/2010 07:08:43 PM
Kim, I am currently a post baccalaureate student. I already have my bachelors degree but am currently enrolled as a second degree student (Biology) with junior standing to complete my premed requirements. Am I eligble for the American opportunity credit?
Posted by: Amanda Walker at 02/19/2010 06:26:21 PM
Hi Kim- I also recieved a 2nd bachelors degree in May of 2009 in Dental hygiene. Does the cost of my national and regional board exams and state licensures apply to the minimum of $4000 of tuition, books, etc to qualify?
Posted by: ellyn at 02/20/2010 03:44:45 PM
Hi, Kim. I have a question about the NON-refundable credits. From IRS website, both lifetime credit and Hope are nonrefundable, only American Oportunity is 40 percent refundable. Does that mean if our family still have returned tax money from IRS, I cannot get a penny from the credit? Thanks.
Posted by: Vicki at 02/21/2010 11:02:59 AM
Kim, If we file jointly and earn more than $160,000, how do we figure out our deduction for our daughter in her first year of college. We have a 529 plan for her but till owed a lot per year for housing, tech credits, etc. Thank you...
Posted by: ROCHELLE SCHISSLER at 02/25/2010 01:43:12 PM
I AM WONDERING IF I QUALIFY FOR THE EDUCATION CREDIT. i HAVE TO LOANS AND START PAYING BACK THEM IN APRIL. DO I GET ANY REFUNDS AT ALL? BEING i GO TO SCHOOL?
Posted by: Mark M. at 02/27/2010 03:06:10 PM
One of my children started college full time in August 09 and I paid $2,000 out of pocket and he paid more through his own college loans. Here's the trick part, after 60 days he dropped out. He is my dependant. Would I still qualify for the American Opportunity Credit? I fall under the earnings limit so I would normally qualify. Thanks Kim. Mark M.
Posted by: Sean at 03/01/2010 09:55:38 PM
Can you still recieve the American Opportunity Credit in your return if you are an unemployed full-time student and were unemployed for all of 2009??
Posted by: mike harris at 03/07/2010 11:07:18 PM
Are there any 2009 tax deductions or credits for tuition or other expenses for college graduate programs such as for a masters degree?
Posted by: Sondra H at 04/07/2010 01:38:26 PM
If I have already filed my taxes, what form do I use to claim this credit?
Posted by: Mama 2 at 04/10/2010 10:11:28 PM
Can I claim a laptop, software and internet service purchased for my daughter's use in college?
Posted by: Padma at 04/12/2010 05:37:02 PM
Hi Kim, my son is freshmen in college. we took 25000 as tuition loan in August 2009 and the payments will start from next month. and we also spend on his computer, books, lab fees etc more than 4000 easily. how to claim taxes? what is the american oppurtunity credit? can you help me in saving some money here. Thanks.
Posted by: Dan at 04/29/2010 11:36:40 AM
Kim, I'm divorced and my son is about to enter college. My ex-wife and myself are splitting tuition for him. How do the tax credits/deductions work for us? Do I get the credits/deductions every other year he is in college? Thanks...