If you have been thinking about going back to college to get that bachelor's degree, now is the time. The American Opportunity Tax Credit ends this year.
The credit offers up to a $2,500 deduction in each of four years. The first $1,500 is a credit that lowers your tax liability, and the remaining $1,000 is refundable.
The American Opportunity Tax Credit was modeled after the earlier Hope Scholarship and Lifetime Learning credits. It is a dollar-for-dollar tax reduction of up to $2,500 for the first $4,000 in eligible educational expenses (tuition, fees, course-related supplies and so on) that can be taken in each of the first four years. The refundable part is 40 percent of the credit taken.
This is a per-student credit. If the taxpayer and any or all of his or her dependents are qualified students, the credit is available for each person for each of the four years he or she qualifies.
Unlike the Hope Credit, which was for the first two years of secondary education, the American Opportunity Credit is a four-year tax credit.
What qualifies as expenses also differs from the Hope Credit.
The American Opportunity Credit includes expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution. If the course requires the student to use a computer, for example, the expense of the purchase of a new computer is also deductible.
Any taxpayer with a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student.
The credit is reduced if a taxpayer's modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim the credit.
An eligible student for this credit is a student who: 1) is enrolled in a program leading toward a degree, certificate or other recognized post-secondary educational credential; 2) has not completed the first four years of post-secondary education as of the beginning of the taxable year; 3) for at least one academic period is carrying at least one-half of the normal full-time workload for the course of study the student is pursuing; and 4) has not been convicted of a felony drug offense.
One important point: This credit is not available for married-filing-separate taxpayers.
If you are planning to attend college in the spring, you can pay for tuition and purchase required materials this year and still get the credit. The credit is for the year the tuition and expenses are paid and allows for the first three months of attendance in the next year to qualify for this credit.
This credit is set to expire Jan. 1, and unless Congress extends it, 2012 will be the final year to claim the credit. This credit cannot be taken in conjunction with any other education credit.
For more information, visit www.irs.gov and type education credits in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.