Over the last couple of weeks, we talked about business credits that are available. Go back and listen to those podcast recordings on our website. Today I want to transition into some personal tax return credits.  The first ones are education credits which can offset some of the costs for college expenses. There are two main credits – the American Opportunity Credit and the Lifetime Learning Credit. Click the play buttons below to catch two episodes that explain all you need to know about The American Opportunity Credit.

Script:

Let’s start with the American Opportunity Tax Credit since that is the larger one if I remember right.

Correct.

Available for the first four years of college.  – AGI limits apply. – Max credit is $2,500 per year.

How is the credit calculated?

  • 100% of the first $2,000 of expense and 25% of the next $2,000 – Total $2,500 if you have $4,000 in expenses.

40% up to $1,000 is refundable.

What expenses count?

  • Tuition, fees and course materials such as books and equipment
  • Not room and board, or other living expenses.
  • EdVest or other 529 plans – Room and board and technology items

You mentioned income limits earlier, what are those limits?

  • 2019 – begins at $80k single and phased out at $90k
  • $160k for MFJ – total phase out at $180k.

And it’s only available for the first four years?

  • Correct.
  • Student must not have completed the first four years of school.
  • Even if they did not take the credit all four years.
  • Also – must be attending a qualified college or tech school – pursuing a degree and attending at least half time.

Next week we will talk about some important planning items relating the credit and also the Lifetime learning credit.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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