As part of the American Recovery and Reinvestment Act of 2009, a partially refundable tax credit is available to families with qualifying educational expenses. The American Opportunity Tax Credit (AOTC) modifies the existing Hope Scholarship Credit that students received in previous years.

Here is what has been modified:
• The credit is increased from $1,800 to $2,500.
• The credit is a tax credit of up to $2,500 (100% of the first $2,000 and 25% of the next $2,000) for out-of-pocket expenses for tuition and related expenses.  These expenses include course materials paid for during the taxable year. In order to claim the credit for course materials (such as books), you will need to keep copies of your receipts.
• Previously the credit was only good for freshman and sophomore years, but is now expanded and can be claimed for all 4 years.
• The income restrictions for claiming the credit also increased from $80,000 to $90,000 (single filers) and from $160,000 to $180,000 (joint filers).
• Students with no tax liability will now be able to get at least a partial tax credit – 40% of the student’s qualifying expenses are refundable, up to $1000. 

These new guidelines are in place for 2009 and 2010. This is great news because these changes are expected to help an additional 4 million families with educational expenses this year. However, the AOTC cannot be taken in addition to the standard tuition and fees deduction, so it’s best to consult with a tax specialist to find out which option will benefit you most. For more information regarding the AOTC please visit http://www.irs.gov/newsroom/article/0,,id=211309,00.html.

Giving you some credit,

Rich