Earlier today the Roni Deutch Tax Center – Tax Help Blog posted a new entry explaining the American Opportunity Tax Credit. As the article explains, the new credit is actually just an expansion of the Hope Scholarship tax credit, with a higher maximum and a longer life span.
Credit vs. Deduction
Unlike a tax deduction, which lowers your taxable income, a credit lowers your tax bill (or increases your refund) dollar for dollar. The exact value of a deduction depends on your tax bracket, while credits are a set amount no matter what income bracket you are in.
Value of the Credit
The new credit has a maximum of $2,500 and can also be claimed for up to 4 years.