The American Opportunity Act was expanded under the American Recovery and Reinvestment Act (ARRA) of 2009, so that more parents and students will be eligible for a tax credit over the next two years to pay for college-related costs.

The American Opportunity Tax Credit (AOTC) is available for tax years 2009 and 2010, modifying the Hope Credit (applicable for 2008 and earlier years) to expand eligibility to include taxpayers with higher incomes and those that owe no federal income tax. In addition, the AOTC will now include course materials (i.e. books) as qualified expenses and increases the number of years the credit can be claimed from two post-secondary education years to four years.

The maximum annual credit is $2,500 per student with the full credit allowed for individual taxpayers with Modified Adjusted Gross Incomes (MAGI) of $80,000 or less or $160,000 for married taxpayers filing jointly. The credit is phased out for taxpayers with MAGIs above these levels. Higher MAGI levels qualify for the maximum credit under the Hope Credit and Lifetime Learning Credit.

For 2009 only, students attending a college in a “Midwestern Disaster Area” (as designated by the IRS ore appropriate federal agency) can receive a special Hope Credit of up to $3,600 or the standard AOTC.

Note: Taxpayers cannot claim both the Hope Credit or AOTC and the “Lifetime Learning Credit” for the same student in the same year.

Information on the American Opportunity Tax Credit (and other education-related tax benefits) can be found in the “Tax Benefits for Education: Information Center” and the “American Recovery and Reinvestment Act of 2009: Information Center” on the IRS website, as well as “Tax Benefits for Education” (Publication 970), “Special IRS Web Section Highlights Back-to-School Tax Breaks” (IR-2009-78) and other documents available from the IRS. Taxpayers should also consult with CPAs, professional tax preparers or other tax practitioners for advice to determine whether tax credits, tax deductions or other education-related tax benefits are best suited to their specific tax situation.

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