As you likely are aware, the United States Federal Government gives out many tax credits that are designed to incentivize certain types of behavior. One example is helping people attend college or another four-year institution. For individuals like this, the American Opportunity Tax Credit may be an ideal way to save money on your taxes and maximize your tax return.

Qualifications for the American Opportunity Tax Credit

You are eligible for the American Opportunity Tax Credit if you are:

  • Enrolled in a college and getting your four-year degree, or enrolled in another “recognized educational credential.”
  • Enrolled on at least a half-time basis for at least one academic period (semester, trimester, or quarter) during the start of the tax year.

Keep in mind that you will lose eligibility if you:

  • Have already claimed the AOTC or Hope credit for more than four years.
  • Have been convicted of felony drug possession. 

There are also income limits on this tax. As of today, your modified adjusted gross income must be under $80,000 ($160,000 if married and filing jointly). The credit will phase out up to $90,000 ($180,000 if married filing jointly). 

Have Extra Questions About This Tax Credit? 

For audit purposes, be careful. If you are audited, you will need to prove that you were eligible for the American Opportunity Tax Credit. As such, make sure to maintain all paperwork related to this credit for three years. If you are audited and found to be not eligible for the tax credit, you will have to pay it back with interest. You may also be barred from filing for this credit in the near future. 

Remember, this is a tax credit, which means that it will go against how much you actually owe.

The Nerds Can Assist

Do you have any other questions about this tax credit or others? Connect today to CPA Nerds, and let us help you save on your taxes.