Opportunity Knocks for College Tax Breaks

Deductions and Credits

Tax breaks for college students and their families are bigger and better this fall than in 2008, thanks to the Stimulus Package passed in early 2009.

The stimulus not only increased the amount of a key tax credit for college expenses, it made the credit available to more students in 2009 and 2010.

What used to be called the Hope Credit is now the American Opportunity Tax Credit. A tax credit reduces your taxes dollar for dollar.

The Hope Credit was worth $1,800 annually, but only students in the first and second years of college qualified for it.

TheAmerican Opportunity Credit is a much heftier $2,500 – and it can be claimed by students during all four years of college. The new credit was also expanded to include more middle- and upper-middle income families.

For some lower-income taxpayers, the credit is also “refundable.” That means that if the credit is worth more than a taxpayer owes for the year, that taxpayer you could get up to 40% of the credit, or $1,000 as a tax refund.

Graduate students and other, post-secondary students who don’t qualify for the Opportunity Credit might still benefit from the Lifetime Learning Credit or for the tuition deduction.

You can read more about the new Opportunity Credit on TurboTax.com.To learn about all the different tax breaks for higher education, visit the new IRS Information Center on Tax Benefits for Education.

Comments (6) Leave your comment

  1. I agree with Jim A that TT is not properly determining AOC eligibility. In doing my son’s return to see if he was eligible for the AOC (I’m not), it appears a key interview question is misleading. Turbotax asks “did a parent or someone else provide over half of your support in 2009.” If you answer “yes,” Turbotax says you aren’t eligible for a refundable AOC credit.

    But IRS Pub 970 has a much different take on this. It evaluates your child’s income against the total support provided to determine AOC eligibility. And support includes spending by parents, the child and anyone else in support of the child’s education expenses. If your child’s income is less than 50% of the total support, they aren’t eligible for the AOC. If their income is greater than 50% of the support, they are eligible for a refundable credit (subject to other income levels).

    If I’m incorrect here, let me know, but this seems like a major bug in TT. In my son’s case, he would get another $1k in AOC refundable credit.

  2. Confirmed: Turbo tax is not determining eligibility properly for the American Opportunity tax credit.

    I am filling jointly and my income is far less than $160,000 but it is only allowing a $2000 education deduction and NOT a $2500 credit.

  3. Curious as to why the 2008 TurboTax program would not accept entries for line 19 (Tuition and Fees)?

    Like to receive an answer.

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