what is the american opportunity tax credit aotc 
the american opportunity tax credit aotc is a tax credit for qualified education expenses associated with the first four years of a student s postsecondary education the maximum annual credit is 2 500 per eligible student the student someone claiming the student as a dependent or a spouse making postsecondary education payments can claim the aotc on their tax return understanding the american opportunity tax creditwith the aotc a household with a qualifying student can receive a maximum 2 500 tax credit per year for the first four years of higher education 1the aotc helps with educational costs such as tuition and other expenses related to a student s coursework eligible students or their parents can claim 100 of the first 2 000 spent on school expenses and 25 of the next 2 000 this comes out to a maximum credit of 2 500 100 2 000 25 2 000 1the american opportunity tax credit is partially refundable which means that it could provide a refund even if your tax liability is 0 1in general tax credits are refundable nonrefundable or partially refundable up to 1 000 40 of the aotc is refundable making it a partially refundable tax credit so if the credit brings your tax liability to 0 you can receive 40 of your eligible credit up to 1 000 as a refund 1aotc eligibility requirementslike other tax credits you must meet specific eligibility requirements to claim the aotc to claim the aotc on your tax return you must meet all three of these requirements 2additionally you must receive internal revenue service irs form 1098 t from an eligible school to claim the credit 2 here s an example of the form a student is eligible for the aotc only if they meet certain requirements specifically the student must 1academic periods can be quarters trimesters semesters or summer school sessions if the school doesn t have academic terms you can treat the payment period as an academic period 1qualified education expenses include tuition and some related costs required to attend an eligible educational institution an eligible educational institution is any accredited public nonprofit or private college university vocational school or other postsecondary educational institution 3 related expenses include 4insurance medical expenses including student health fees room and board transportation and living expenses do not count as qualified education expenses 4you can pay for qualified education expenses with student loans however you can t claim the credit if you paid for expenses with scholarships grants employer provided assistance or funds from a 529 savings plan 4there is an exception to that if some amount of qualified expenses remains after using tax free educational assistance to pay for them 5those who wish to claim the full credit must have modified adjusted gross income magi of 80 000 or less 160 000 if married filing jointly the credit begins to phase out above these limits and disappears entirely if your magi is above 90 000 180 000 for married filing jointly 1aotc vs lifetime learning creditthe aotc and the lifetime learning credit llc are popular tax breaks that people with educational expenses can claim on their annual tax returns while similar the llc and the aotc differ in several ways 6with the llc you can claim up to 20 of the first 10 000 of qualifying expenses 2 000 the llc is not limited to students pursuing a degree or studying at least part time instead it covers a broader group of students including part time full time undergraduate graduate and courses for skill development finally the llc is nonrefundable meaning that once your tax bill hits zero you won t receive a refund on any credit balance 67if you re eligible for both the aotc and the llc be sure to assess your individual situation to determine which tax credit provides the greater benefit the partial refundability of the aotc can be an important factor of course some taxpayers may only qualify for the llc making the decision easy you can claim the aotc and the llc as well as the deduction for tuition and fees on the same tax return but not for the same student or the same qualified expenses 5other tax breaks for educationfederal and state governments support higher education expenses through various tax credits tax deductions and tax advantaged savings plans each of these programs can help lower your income tax liability and make education more affordable beyond the aotc and the llc be sure to claim any education related tax deductions for which you may be eligible including those for 8savings plans can also help with higher education expenses these are tax advantaged accounts that allow you to save and pay for education expenses two popular programs include 8thanks to the tax cuts and jobs act you can now use up to 10 000 of 529 plan distributions to pay for k 12 costs per beneficiary each year 9 previously you could use the funds only for college and other postsecondary education expenses aotc examplerosa is a full time undergraduate college student at a four year institution she also works for a law firm her parents have a substantial 529 savings account in place but it doesn t cover all of rosa s expenses rosa also has a student loan with deferred payments and interest until after graduation rosa and her family pay her tuition with student loans and use funds from a 529 plan to cover room and board rosa receives her annual 1098 t statement and since she is working she plans to take the aotc herself she is eligible for both the aotc and the llc but she chooses the aotc because it provides a larger credit and is partially refundable 4rosa paid her tuition with a student loan which is allowable for the aotc the aotc helps alleviate any tax that she owes and she also gets a partial refund rosa doesn t owe anything on her loans until after she graduates the money distributed from the 529 was tax free because it was used for room and board which is a qualified 529 expense 4