American Opportunity Tax Credit – Eligibility for AOTC and how to Claim it?

American Opportunity Tax Credit for qualified school costs paid for an eligible student’s first four years of higher education is known as the American Opportunity Tax Credit (AOTC). For each qualified student, you can receive up to a $2,500 yearly credit.

American Opportunity Tax Credit

The first four years of a student’s postsecondary education may be eligible for a tax credit known as the American Opportunity Tax Credit (AOTC). Each qualifying student may get up to $2,500 in credit each year. 

The AOTC may be claimed on a tax return by the student, a person claiming the student as a dependent, or a spouse making contributions for postsecondary education. Your modified adjusted gross income (MAGI) must be $80,000 or less (or, if you’re married filing jointly, no more than $160,000) to qualify for the credit. 

A maximum yearly credit of $2,500 is available for each qualified student, and if you owe no taxes, you may be entitled to a refund of 40%, or $1,000. There is an income cap on this credit.

Who is Eligible for American Opportunity Tax Credit?

Parents or students can lower the cost of attending college by taking advantage of the American Opportunity Credit. Nonetheless, eligibility is subject to many conditions.

  • It must be your goal to obtain a degree or another official educational certificate. 
  • Starting in the tax year, you must be enrolled for at least one academic term at least half-time. 
  • At the start of the tax year, you won’t have completed your first four years of college. 
  • For more than four tax years, you have not claimed the AOTC or the old Hope credit. 
  • When the tax year ends, you do not have a felony drug conviction on your record. 
  • A modified adjusted gross income (MAGI) of $80,000 or less ($160,000 if married filing jointly) is required for those who want to take advantage of the full benefit. 
  • Above these thresholds, the credit starts to fade off and vanishes completely if your MAGI exceeds $90,000 ($180,000 if you’re married filing jointly).

American Opportunity Tax Credit

What may have an impact on your American Opportunity Credit eligibility?

Several circumstances can prevent you from receiving credit. If any of the following describes you, you cannot take the AOTC:

  • Married filing separately (MFS) is the status of your filing.
  • On someone else’s tax return (such as the taxpayer’s parents’ return), you are listed as a dependent.
  • For any portion of the year, you or your spouse were nonresident aliens, and the nonresident alien did not want to be classified as a resident alien for tax reasons.
  • You claimed a Lifetime Learning Credit or a Tuition and Fees Deduction using the same costs.
  • You treated a grant, scholarship, or employer-sponsored educational help as tax-free by using the same costs.
  • You were reimbursed for all of the costs.
  • When the tax return for the tax year was due, the qualifying student did not have an SSN or ITIN.

How Much Can You Get through American Opportunity Tax Credit?

Every qualifying student may only claim one American Opportunity Tax Credit per tax year. If you have two qualified dependents, you can claim the American Opportunity Credit for one student and a separate educational tax benefit for the other; you are not required to claim the same credit for both dependents. 

For every student, you are only allowed to claim one tax advantage each year. The amount for each student is:

  • 100% of the first $2,000 in approved costs plus 25% of the costs beyond that amount
  • Each student is limited to $2,500 in annual credit.

How to Claim American Opportunity Tax Credit?

Fill out Form 8863, attach it to your Form 1040 or 1040-SR, and include it with your yearly income tax return to be eligible for the AOTC. On Schedule 3 of your 1040 or 1040-SR, line 3, enter the portion of the credit that is not refundable. Line 29 of the 1040 or 1040-SR should contain the refundable part of the credit.

  • Firstly, navigate to https://www.irs.gov/forms-pubs/about-form-8863 and choose the 8863 instruction, review and understand all the instructions.
  • Then hit “8863 form link, “Here, put all the required and requested fields.
  • Now fill out the 1040 form attach it with the first one and submit your form after double-checking all details. 

Make sure you meet the requirements before claiming the credit, and make sure you save copies of all the paperwork you need to ascertain your eligibility and credit limit.

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