The American Opportunity edit originated in with American Recovery and Rvestm Act.  This act greatly modified the Hope Scholarship edit and renamed it the American Opportunity edit.  The American Opportunity edit (AOC) was scheduled to expire on December 31, 2010.  On December 17, 2010, however, the Job eations Act extended the AOC through December 31, 2012.  After the AOC expires, the Hope Scholarship edit is scheduled to return.

The AOC improves upon the Hope Scholarship edit (HSC) in three bc ways:

The annual edit amount of the American Opportunity edit is the same as the Hope Scholarship edit.  It will reduce the tax burden of qualifying taxpayers by 100% of the first $2,000 and 25% of the second $2,000 sp on qualifying education expenses during the year.  If you pay more than $4,000 in annual qualifying expenses you may receive a tax edit of $2,500 ($2,000 times 100% plus $2,000 times 25%).  The edit is also a per-stud edit.  If more than one family member qualifies for the edit, the amount will be avail for each stud.

As mioned above, one improvem of the AOC is that it covers more years of college than the HSC – in effect, potially doubling the avail edit per stud.  The HSC was only avail for the first two years of post-seconry education.  The AOC is avail for the first four years. 
The AOC also broadens the definition of expenses that qualify for the edit.  The HSC only covered tuition and related fees as qualifying expenses.  The AOC, however, adds s and other course materials to this list.  A computer may even qualify if it is a requirem for enrollm at the intution.

Income limitations for those who qualify have also ineased with the AOC.  Individual taxpayers with modified adjusted gross incomes of $80,000 or less ($160,000 if married and filing jointly) will qualify for the amount of the edit.  The edit begins to be reduced once incomes exceed this threshold and will reach zero once an individual taxpayer’s income exceeds $90,000 ($180,000 if married and filing jointly).  Those who are married but file their tax returns separately do not qualify for the edit.

A major difference between the AOC and the HSC is that up to 40% of the AOC is refunble.  This means that a taxpayer can receive up to 40% of the edit ($1000) as a refund for each eligible stud, even if they owe no tax.

The AOC can be claimed by the stud (if not a depend) or a par claiming the stud as a depend regardless of who p for tuition.  Qualifying expenses must be reduced by any grants or scholarships.  The edit can be claimed by any stud pursuing a degree within the first four years of post-seconry education.  Graduate classes and vocational certificates also qualify so long as they occur within the stud’s first four years of post-seconry education.  The stud must also attend at least half-time for one semester during the year and have no felony drug convictions.

In this article, I have discussed the bcs of the American Opportunity edit.  I did not discuss other tax-saving incives such as the Life-Time Learning edit, 529 plans, or the AGI tuition deduction.  If you would like more information see IRS Publication 970 or feel free to call our office to consult with a tax professional. 


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