Thursday, August 12, 2010

The American Opportunity Credit

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.

Eligibility Requirements

According to the IRS only qualifying full-time college students are eligible for the credit. Although it is available for 4 years, the actual amount you are eligible to receive will vary on your income level. Additionally, unlike past credits the American Opportunity Credit is 40% refundable, so even families who do not pay income taxes will be able to take advantage of the tax credit.

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