For tax years 2009 through 2012, the American Opportunity Tax Credit is available to each eligible student and for the first four years of college or other postsecondary school that leads to a degree, certificate or other recognized educational credential. It does not apply to graduate-level courses. The maximum credit is $2,500 per student for each year and 40% of the credit is refundable (it can reduce the taxpayer's liability below zero). This means you can receive up to $1,000 even if you owe no taxes.
Costs include tuition, student-activity fees required for enrollment and attendance as well as books, supplies and equipment needed for a course of study that must be purchased from the educational institution as a condition of enrollment or attendance. However, course materials qualify for the credit even if not required as a condition of employment.
The credit applies to 100% of the first $2,000 of costs and 25% of the next $2,000 of costs. It phases out at modified AGI levels between $160,000 and $180,000 (married filing jointly), and $80,000 and $90,000 (other filers).
If modified AGI is less than the $160,000 and $80,000 thresholds, the full credit can be claimed. However, if it is equal to or greater than the $180,000 and $90,000 thresholds, the credit is not available.
Keep in mind that none of the credit is refundable if the taxpayer claiming the credit is a child with investment income subject to the Kiddie Tax.
This credit is allowed against the AMT and is no longer available after December 31, 2010.
