American Opportunity Tax Credit

This year, Congress expanded and renamed the Hope Credit so that more taxpayers qualify for it. The new credit, called the American Opportunity Tax Credit, gives qualifying taxpayers a credit of 100 percent of the first $2,000 spent on tuition and course material plus 25 percent of the next $2,000. The credit maximum for the credit is now $2,500

New Changes Include:
1. Adds required textbooks and other course materials to the list of qualifying expenses

2. Allows the credit to be claimed for the first four post-secondary education years instead of two

Many of those eligible will qualify for the maximum annual credit of $2,500 per student, which is more than $700 higher than the old Hope Credit, and, for the first time, will provide a partial refund of up to $1,000.

For Example:

If you or your student has out-of-pocket course material expenses or tuition and fees during 2009 or 2010 and no other financial grant aid covers those expenses, you will be able to claim the expenses as a credit. For each student the credit is limited to $2,500.

2010 Tax Liability $2,000

(Before Any Credits)

Student had $5,000 in allowable higher education expenses = $2,000 credit

(100% of 1st $2,000 out-of-pocket qualified education expenses)

+ $500 (25% of the remaining $3,000 in out-0f-pocket qualifying education expenses)

2010 Tax Liability
$0
(Before Any Credits)

Student's qualified expenses credit of $2,500 = refund of $1,000 (Credit is 40% refundable [.40 x 2,500 = 1,000])

Please contact us if you need more information about the new American Opportunity Tax Credit credit

Mary Walsh, CPA & Associates
2035 Grand Avenue
Phone: (406) 782-1955

Fax: (406) 782-8552
Butte, Montana 59701