The American opportunity tax credit (AOTC)

A credit worth up to $2,500 for those with higher education expenses

Derek Silva

Derek Silva

Published March 17, 2020

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KEY TAKEAWAYS

  • The AOTC is only available for qualified education expenses, including college tuition, books, and other supplies for class

  • You can only claim the AOTC for the student’s first four years of higher education

  • The maximum annual AOTC is $2,500 per student

  • Your income must be within the income limits to qualify: $180,000 for joint filers and $90,000 for all others

The American opportunity tax credit (AOTC) allows taxpayers to save money on their taxes if they paid higher education expenses for themselves, a spouse, or a dependent. The credit is worth up to $2,500 per student but only for their first four years of higher education.

Only certain expenses qualify for the AOTC. You can always include tuition and other school fees that are necessary in order to enroll in a course of educational program. Unlike other education credits, the AOTC also allows you to include your expenses on books and classroom supplies. Just make sure to keep receipts or records of your spending. Schools typically report your tuition payments on a Form 1098-T at the end of the year.

There are also income limits for the AOTC. The full credit is available if your income is $80,000 or less for single filers and $160,000 or less for married couples filing jointly. You may still get a partial credit if you earned more, but you are no longer eligible to claim the credit once your income reaches $90,000, if you’re a single filer, or $180,000, if you’re a joint filer.

Claim the AOTC by completing Schedule 3 and Form 8863. For more help filing 2019 taxes, which are due by July 15, 2020, try this guide to filing taxes. (Note that, because of the coronavirus (COVID-19) outbreak, the Tax Day deadline was extended by 90 days, from April 15, 2020, to July 15, 2020.)

Expenses that qualify

The AOTC is only available for what the IRS calls qualified education expenses. Qualifying expenses include

  • Tuition
  • Fees you are required to pay in order to enroll in a course or program
  • Books
  • Classroom supplies and equipment

Your educational institution will probably list your total tuition and fee payments on a copy of Form 1098-T, Tuition Statement. You can include other expenses even if you didn’t pay them directly to the school. Make sure to keep records of all your spending. If the IRS finds that you reported inaccurate spending amounts, it can disqualify you from claiming the AOTC for between two and 10 years.

You cannot claim room and board costs, transportation, or medical expenses like student health fees.

How many years you can claim the AOTC

Only a student’s first four years of higher education are eligible for the AOTC. This is typically just enough for an undergraduate degree and so graduate students don’t qualify unless their undergraduate degree took fewer than four years to complete.

You don’t need to complete all four years consecutively, but a taxpayer can only claim the credit on four separate income tax returns. (The four-year limit includes any years you claimed the Hope credit, a previous version of the AOTC.)

When you claim the credit for a given year, you can include expenses from all academic periods that started during that year or during the first three months of the next year. For the 2019 tax credit, you can include expenses incurred through the end of March 2020. An academic period is a semester, trimester, quarter, summer session, or similar period.

If you already make student loan payments, such as on unsubsidized loans, you may also be able to claim the student loan interest deduction. (Learn more about credits vs deductions.)

Tax Day is July 15th.

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AOTC income limits

You can only claim the American opportunity credit if your income is within certain limits. The income used is your modified adjusted gross income, which is your total annual income minus certain deductions.

2020 AOTC income limits

Filing statusMaximum income for full creditMaximum income for partial credit
Single$80,000$90,000
Head of household$80,000$90,000
Married, filing jointly$160,000$180,000
Married, filing separately$80,000$90,000
Qualified widow(er)$80,000$90,000

If your income is too high for the AOTC, there are other tax deductions you may still be able to claim.

(Learn more about your tax filing status.)

How much is the AOTC

The AOTC is worth a maximum of $2,500 per student per year. If you paid education expenses for multiple people, such as for two dependents, you can deduct up to $2,500 for each person. Your exact credit amount is calculated as the 100% of your first $2,000 of qualified expenses, and then 25% of your next $2,000 of eligible expenses. You need to have at least $4,000 of expenses per person in order to qualify for the maximum credit.

The AOTC is also a refundable tax credit. So if the annual income tax you owe goes below $0, you can still receive a refund for the value of the remaining credit. This refundable portion is worth 40% of your total credit, up to $1,000.

How to claim the AOTC

Claim the American opportunity tax credit by completing Form 8863, Education Credits. This is the same form you would use to claim the lifetime learning credit (LLC), but you can only choose to claim one of the credits in a given year. The form requires you to list your school’s employer identification number (EIN). Ask the institution for their EIN if you don’t already have it.

You should also fill in the relevant parts of Schedule 3 and then attach both forms to your income tax return (Form 1040).

You can’t claim the AOTC if you had a felony drug conviction by the end of the tax year.

AOTC for nonresident aliens

You also cannot claim the AOTC if you’re a nonresident alien, with one exception. For people who file a joint return, they can claim the AOTC if one spouse is a resident and chooses for the IRS to treat both spouses as residents on their taxes. To make this choice, simply file a joint return using Form 1040. It is not possible to claim the AOTC if you use Form 1040-NR.

Make sure that all the students you claim expenses for have a Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) by the date you file your taxes. You can also claim the AOTC if your tax return has an application for an ITIN attached to it.

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