American Opportunity Credit Is Still Available

Can families still take the American Opportunity Tax Credit on their taxes to pay for college bills, or did it expire? If they can, who qualifies?

The American Opportunity credit, worth up to $2,500 per student for each of the first four years of college, was scheduled to expire at the end of 2012, but the fiscal cliff law passed on January 1 extends this tax break through 2017.

To qualify for the full American Opportunity Tax Credit, your adjusted gross income must be less than $90,000 if you are single or filing as head of household, or $180,000 if you’re married filing jointly (the size of the credit starts to phase out at $80,000 for singles and heads of household, and at $160,000 for couples filing jointly). Money spent on tuition, fees and books in the first four years of college counts toward the credit (room and board doesn’t count).

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The credit is worth 100% of the first $2,000 you pay for eligible expenses, plus 25% of the next $2,000 of eligible expenses, totaling $2,500 for each of the four years. As a credit, rather than a deduction, it lowers your tax bill dollar-for-dollar. You can claim the credit by filing IRS Form 8863 with your 1040.

Your student must be enrolled at least half-time for one academic period during the year in a program leading to a degree, certificate or other recognized educational credential. After the first four years, students may qualify for the Lifetime Learning Credit, worth up to $2,000 per return if you spend $10,000 or more in eligible expenses for the year. See IRS Publication 970, Tax Benefits for Education, for details.