What It Covers
The American opportunity credit allows taxpayers to claim a credit of up to $2,500 based on qualified tuition and related expenses paid for each eligible student. The credit covers 100% of the first $2,000 and 25% of the second $2,000 of eligible expenses per student, up to the amount of tax. Forty percent of the American opportunity credit is a refundable credit, which means the taxpayer can receive up to $1,000 even if no taxes are owed. Taxpayers under age 24 cannot claim the refundable portion of the credit if certain conditions are met. See Form 8863 Instructions for details.
The American opportunity credit is available for the first four years of college per eligible student (generally, freshman through senior years).
If the student doesn't meet all of the conditions for the American opportunity credit, the taxpayer may be able to take the lifetime learning credit for part or all of the student's qualified expenses.
Mindy started college in 2009. She can claim the American opportunity tax credit for the first four years of her college education.
Mindy's brother, Jim, started college in 2008. He claimed the Hope credit for his first year of college. In 2009, Jim attended college and took less than half the normal requirements. Since the American opportunity expanded the education credit for the first four years of postsecondary education, he claimed the American opportunity tax credit for tax years 2010 through 2012 when he was considered a full-time student.
Toby had receipts for books and supplies his first year at college. He spent $1,291 for required books, lab supplies, and rock-hunting equipment he needed for his introductory chemistry and geology courses. The school does not require that these books and equipment be purchased from the college in order to enroll. These are qualified expenses for the American opportunity credit.