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American Opportunity Tax Credit (AOTC)

American Opportunity Tax Credit (AOTC)

What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit (AOTC) is a tax break that the government offers to eligible students signing up for a higher-education institution. As part of President Barack Obama's 2009 stimulus package, the AOTC covers the first $2,500 of educational expenses for families that fall inside a certain income bracket.

More profound definition

To be the eligible for the AOTC, the student must be chasing after a recognized education certification or degree, can't have completed her initial four years of higher education toward the beginning of the tax year, and must be enrolled in some measure half time for no less than one scholarly period that tax year. Moreover, the student must not have been sentenced for a lawful offense drug charge. The AOTC can be claimed just once per student each tax year.
Taxpayers who paid the qualified educational expenses of a student are eligible to claim the full AOTC amount in the event that they are single-filers whose modified adjusted gross income is $80,000 or less or are married, filing jointly, and earning $160,000 or less. Qualified educational expenses are those required for enrollment at the student's school like tuition, fees, and course materials, however they do exclude room and board, medical expenses and insurance, or transportation. The AOTC might in fact be claimed when the expenses are paid for with a student loan.
The credit applies to 100 percent of the first $2,000 of qualified educational expenses and 25 percent of the next $2,000. A little less than half of the amount left over in the wake of covering the student's expenses, up to $1,000, will be refunded to the taxpayer in the event that the AOTC decreases the taxes she owes to zero. The AOTC can't be claimed when the student receives a grant or grant that pays for all his educational expenses.

American Opportunity Tax Credit model

Orson is an undergraduate this spring, yet when he graduates he'll begin graduate school in the fall. He just claimed the AOTC for quite a long time of college, and desires to claim it for the main year of graduate school. Since he's still inside the income threshold, and has qualified educational expenses, he stays qualified for the AOTC. At the point when he begins graduate school, he can claim the AOTC for the whole taxable year. Nonetheless, in light of the fact that that year will be his fourth of claiming the AOTC, Orson will not have the option to claim it in the future.


  • Room and board, medical costs, transportation, and insurance don't qualify, nor do qualified expenses paid for with 529 plan funds.
  • To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 whenever married filing jointly).
  • The AOTC permits an annual $2,500 tax credit for qualified tuition expenses, school fees, and course materials.
  • The American Opportunity Tax Credit (AOTC) helps offset the costs of postsecondary education for students or their parents (on the off chance that the student is a dependent).


Could I at any point claim the AOTC on the off chance that I get a grant?

Indeed. In any case, you want to take away that amount from your qualified education expenses before claiming the tax credit. Thus, on the off chance that you have $5,000 in costs and a $4,000 grant, you would have the option to claim $1,000 of qualified education expenses for the AOTC. For the motivations behind the AOTC, grants incorporate:- Tax-free parts of scholarships and associations Pell Grants and other need-based education grants-Employer-gave help Veterans' educational help Any other tax-free payments that you receive for educational aid (excluding gifts and legacies)

How would I claim the American Opportunity Tax Credit (AOTC)?

To claim the American Opportunity Tax Credit (AOTC), complete Form 8863 and submit it with your Form 1040 or 1040-SR while filing your annual income tax return. Enter the nonrefundable part of the credit on Schedule 3 of your 1040 or 1040-SR, line 3. The refundable portion of the credit goes on line 29 of the 1040 or 1040-SR.

Could I at any point claim the AOTC and the Lifetime Learning Credit?

Indeed. You can claim the AOTC and the Lifetime Learning Credit (LLC) on a similar tax return. Nonetheless, you can't claim the two credits for similar student or similar expenses during a single tax year.