Tax Help for Higher Education

As un increases so does demand for higher education.  Graduate schools are often inundated with applications from recent college graduates who, finding prospects slim, return to school to pursue higher degrees.  Nontraditional students also add to college roster.  Many seek higher education because y are “cyclically” unemployed.  y have been l off because of a decrease in consumer spending (due to recession) and attend school to sharpen ir skills as y await economic rebound.  Or nontraditional students are unemployed due to structural changes in economy.  se individuals have spent years in industries that are now expected to experience prolonged decline (such residential construction).  y have returned to school to train for a new eer with better prospects (such as health e). 

Wher traditional student or economic refugee, recent tax code changes have made college or vocational school significantly less expensive.  American Recover and Reinvestment Act of 2009 modified Hope Scholarship credit for 2009 and 2010, renaming it American Opportunity Credit.  American Opportunity Credit is available for more years of college attendance, reimburses for more expenses, and benefits taxpayers with higher than Hope Scholarship Credit.  A portion of American Opportunity Credit will also generate a refund for many taxpayers who have no tax liability.  Today, I will discuss 2009 and 2010 American Opportunity Credit and highlight some changes that transformed it from Hope Scholarship Credit.  My gl is to help you get your degree and get back on job without digging yourself into debt.

annual credit amount of American Opportunity Credit is same as Hope Scholarship Credit.  It will reduce tax burden of qualifying taxpayers by 100% of first $2,000 and 2% of second $2,000 spent on qualifying education expenses during year.  If you pay more than $4,000 in annual qualifying expenses you may receive a tax credit of $2,00 ($2,000 s 100% plus $2,000 s 2%).  credit is a per student credit.  If more than one family member qualifies for credit, full amount will be available for each student.

A major difference between American Opportunity Credit and Hope Scholarship Credit is that, for certain students, it doubles credit available.  Hope Scholarship Credit was only available for first two years of postsecondary education.  American Opportunity Credit is available for first four years.  Because American Opportunity only applies to 2009 and 2010, this change will only benefit taxpayers who completed ir first or second year of higher education prior to 2009. 

American Opportunity Credit also brdens definition of expenses that qualify for credit.  Hope Scholarship Credit only listed tuition and related fees as qualifying expenses.  American Opportunity Credit, however, adds s and related course materials to this list.  A computer may also qualify if it is a requirement for enrollment at institution.

A major difference between American Opportunity Credit and Hope Scholarship Credit is that up to 40% of American Opportunity Credit is refundable.  This means that a taxpayer can receive up to 40% of credit ($1000) as a refund for each eligible student, even if y owe no tax.

limitations for those who qualify have also increased with American Opportunity credit.  Individual taxpayers with modified adjusted gross s of $80,000 or less ($160,000 if married and filing jointly) will qualify for full amount of credit.  amount of qualifying credit begins to be reduced once s exceed this threshold and is reduced to zero once an individual taxpayer’s exceeds $90,000 ($180,000 if married and filing jointly).  Those who are married but file ir tax returns separately do not qualify for credit.

In this article, I have discussed basics of American Opportunity Credit.  I did not have to highlight many nuances that may impact your particular situation or or taxsaving incentives such as Life Learning Credit, 29 plans, or tuition deduction.  If you would like more about tax incentives for higher education, check out IRS Publication 970, consult your tax professional, or feel free to call our office. 

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