Higher credit for college students

The new American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010. Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses. Include Form 8863 with your tax return.

American Opportunity Credit (new); tax years 2009 and 2010

• includes required course materials to the list of qualifying expenses
• allows the credit to be claimed for four post-secondary education years
• Maximum credit for each student is $2,500 (100% of the first $2,000 of expenses, 25% of the next $2,000 of expenses)
• Credit can reduce your tax liability dollar for dollar (Form 1040 line 49) and provide up to $1,000 additional refund (Form 1040 line 66).
• The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.

Hope Credit; 2008 tax years and earlier

• only includes tuition and fees you are required to pay to the institution as a condition of enrollment or attendance - typically does not include books
• available for only the first two years of post-secondary education - usually the freshmen and sophomore years
• Maximum credit for each student is $1,800 (100% of the first $1,200 of expenses, 50% of the next $1,200 of expenses)
• Credit can only reduce your tax liability dollar for dollar
• The full credit is available to individuals whose modified adjusted gross income is $48,000 or less, or $96,000 or less for married couples filing a joint return.