AOTC or American Opportunity Tax Credit : All You Ever Wanted to Know !

AOTCAs per Internal Revenue Code , one can claim educational credit called  American Opportunity Tax Credit or AOTC . This  educational credit is allowed to a taxpayer for incurring qualified education expenses paid for an eligible student.

For How many Years Can You Calim American Opportunity Tax Credit ?

The AOTC is allowed for the first four years of higher education only 

What is the maximum Amount under AOTC ? Is it refundable ?

You can get a maximum annual educational credit of $2,500 per eligible student which is computed as under :

  •  100 % of the first $2,000 of qualified education expenses  paid for each eligible student Plus
  • 25 percent of the next $2,000 of qualified education expenses you paid for that student.

The AOTC is refundable (only upto 40% of balance aftre adjusting against tax payable .However, maximum amount refundable is $ 1000.

Who is an eligible student ?

A student is eligible for AOTC only if :

  1. He/She  pursues  a degree or other recognized education credential
  2. He/Seh is  enrolled at least half time for at least one academic period  beginning in the tax year.
  3. He/She should not have finished the first four years of higher education at the beginning of the tax year
  4. He/She should not have claimed the AOTC or the former Hope credit for more than four tax years
  5. He/ She should not have a felony drug conviction at the end of the tax year

Is there a limt of income during tax year for claim of AOTC ?

  • Yes, if your modified adjusted gross income  exceeds $ 90000 for single filing status and $ 180,000 for joint filing status , you can not claim AOTC.
    • You get 100% of AOTC if the MAGI is $ 80,000 or less for single filing, # 160,000 for joint filing.
    • You get less AOTC if the MAGI is between $80,000 & $ 90,000 ( for joint filing over $160,000 but less than $180,000)

Which forms should I use ?

The first form that require attention for proper claim of AOTC is a Form 1098-T ( Tuition Statement) issued by your school by January 31. This statement helps you figure your credit. Only qualified educational expense out of this billed amount shown in Form 1098-T can be claimed as education credit.

After this , fill up the Form 8863 and attach the completed form to your Form 1040 or Form 1040A

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