American Opportunity Tax Credit (AOTC)
Candlefocus EditorThe AOTC is available to individuals or their parents (if they are dependents) and is one of the most valuable education tax benefits available. It is available to individuals with a MAGI (modified adjusted gross income) of $80,000 or less ($160,000 if married filing jointly). The AOTC provides a maximum annual credit of $2,500 per eligible student for qualified education expenses which include tuition, certain fees, and course materials. Room and board, medical expenses, transportation, and insurance are not eligible for the credit. Qualified expenses paid for with 529 plan funds also do not qualify.
To maximize the AOTC, the student must incur at least $4,000 of course material or tuition expenses. Only the first $4,000 of tuition expenses is eligible for the full credit. Qualified tuition expenses beyond $4,000 are eligible for a reduced credit of 25%. The AOTC can also be claimed for four tax years for each eligible student. As part of the Tax Cuts and Jobs Act of 2017, this benefit was expanded and is now available for tax years 2018 through 2025.
The AOTC is an extremely valuable tax credit for families with eligible students. It not only helps the student cover the cost of tuition and other associated expenses, it also provides families with a significant tax break. While the exact benefits of this tax credit depend on an individual's financial situation, it can be claimed for four tax years and is an invaluable resource for families looking to minimize the costs of higher education.