A New Opportunity That Helps Pay for College. October 9, 2009
Paul Partridge on the Hope education credit upgrade.
Here’s a benefit of President Obama’s stimulus package that has gone somewhat under the radar since it was passed six months ago.
What used to be called the Hope education credit is now the American opportunity credit. Big deal, they changed the name. Probably just a political ploy to make it sound better, right?
Actually, there’s some real meat here—especially for often-overlooked middle class families.
In a nutshell, the American opportunity credit expands the Hope education credit. It both increases the tax credit and the number of families who qualify, as well as how it can be used. Here are the numbers for 2009-2010:
- The maximum amount of the credit has jumped from $1,800 to $2,500 per year, per student.
- The AOC is available for four years of college, not just the first two years like with the Hope Credit.
- The adjusted gross income limit to qualify for the credit has been raised by 60% — to $160,000 for couples filing jointly ($80,000 for single taxpayers).
Parents who’ve already had kids in college may overlook the American opportunity credit because they think they don’t qualify. But many will. The credit actually applies to households earning up to $180,000 (jointly) or $90,000 (single filers). But the eligible credit starts to decrease on a sliding scale once you cross the $160,000/$80,000 income threshold.
Here’s how the accounting works: The American opportunity tax credit is equal to 100% of the first $2,000 in college costs (qualified tuition and related expenses) and 25% of the next $2,000, for a possible total of $2,500. Books, supplies, equipment and courses materials are now eligible for the credit.
A couple of notes: The American opportunity credit is currently for amounts paid in 2009 and 2010 only. Also, the AOC does not replace the two other education tax breaks—the lifetime learning credit and the tuition and fees tax deduction. You cannot claim the tuition and fees tax deduction in the same year that you claim the American opportunity tax credit or the lifetime learning credit. For most New Jersey families the American opportunity credits will be the best choice.
