Here’s Who Can Claim the American Opportunity Credit

Here's how to qualify for the American Opportunity Tax Credit.

One way to defray expenses, in general, is to research tax credits online such as the child tax credit, earned income tax credit and the disability tax credit. Tuition tax credits, college tax credits or student tax credits, such as the American opportunity tax credit, can help you save money on your taxes.

The cost of attending college can be a major financial burden on students and their families. In 2017-2018, the average tuition rate per year for a four-year degree is $34,740 at a private institution and $25,620 at an out-of-state public school, according to The College Board. The AOTC offers a tax rebate of up to $2,500 for tuition and fees, and it’s available to students and parents.

Learn more about who can claim the American opportunity credit and take advantage of often overlooked tax breaks.

Who Is Eligible for the American Opportunity Tax Credit?

You can reduce the financial impact of college tuition by immediately decreasing your marginal rates with this tax credit. To qualify for the education tax credit, the student must meet these requirements:

  • Is actively pursuing a degree at an accredited institution
  • Has not finished four years of post-secondary school at the beginning of the tax year
  • Is enrolled at least half-time
  • Has no felony drug convictions

Related: Know Before You File — Tax Breaks for 2018

What Are the Income Limits for the American Opportunity Credit?

The credit is valid for each student once during the calendar year. The taxpayer who claims the credit must make an adjusted gross income of no more than $180,000 if filing jointly and $90,000 if filing individually. The credit amount is gradually reduced if your modified adjusted gross income is between $80,000 and $90,000 — or $160,000 and $180,000 if you file a joint return. You’re ineligible to claim an American opportunity credit if your MAGI is $90,000 or more — or $180,000 or more if you file a joint return.

All academic periods are eligible for the credit, including summer school, semesters, trimesters and quarters. Room and board, transportation, insurance and medical costs do not qualify for the credit.

See Also: 13 Commonly Missed Tax Deductions

Who Is Eligible for the Lifetime Learning Credit?

The lifetime learning credit is not as generous as the American opportunity credit, but you can claim it throughout your lifetime, whether you’re an undergrad, graduate student or older, nontraditional student. The credit offers a maximum of $2,000 per year. The same expenses qualify as those for the American opportunity credit, but the credit is nonrefundable, so you can’t use it if you don’t owe taxes.

Where Do I Get My 1098-T?

To get a tax break based on the American opportunity tax credit or the lifetime learning credit, you must submit a Form 1098-T, which schools mail to students by the end of January. The form shows the total amount of tuition and other educational expenses the school collected during the calendar year. For the lifetime learning credit, you must also complete Form 8863 and attach it to Form 1040 or 1040A when you file. The deadline for applying for either of the education tax credits is the same as the regular tax due date: April 17, 2018.

To figure out the tax credit number you’ll be able to claim, make sure that all the figures are correct. If you’re audited by the IRS and the numbers you provided are incorrect, the IRS might charge you an accuracy or fraud penalty.

How the American Opportunity Tax Credit Is Calculated

The American opportunity credit offers a maximum benefit of $2,500 per year. If the credit reduces a taxpayer’s marginal rate completely, 40 percent of the credit — up to $1,000 — is refundable. This means you can get a refund even if you owe no tax.

How the Lifetime Learning Credit Is Calculated

The lifetime learning credit, however, offers a benefit of up to $2,000 per year for educational expenses. It differs from the American opportunity credit in that you cannot get a refund if you have zero tax liability. You might be eligible to claim both credits for the same student in the same year, but the IRS entitles you to claim only one.

Can You Claim the American Opportunity Credit If You Are a Dependent?

Unfortunately, if you are being claimed as a dependent on someone else’s tax return, you cannot claim the American opportunity tax credit. Additionally, you cannot claim the lifetime learning credit for the same reason.

Up Next: 10 Tax Loopholes That Could Save You Thousands

Cynthia Measom contributed to the reporting of this article.