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American Opportunity Credit


The American Opportunity credit, which replaced the HOPE credit, equals 100 percent of the first $2,000 of qualified expenses (tuition, fees required for enrollment, and required course materials), and 25 percent of the next $2,000 of qualified expenses. An individual must pay $4,000 of expenses in order to claim the maximum credit of $2,500. The credit is allowed for the first four years of postsecondary education for each eligible student. An eligible student is defined as a dependent of the taxpayer, or the taxpayer or taxpayer's spouse, if they are not claimed as a dependent on another person's tax return. An eligible student must be enrolled at least half-time to qualify for the credit. The credit is 40 percent refundable, so that an individual with no liability can receive $1,000 of the $2,500 maximum credit as a refund. The remaining $1,500 may only be used to offset liability. Any remaining credit amount that exceeds liability may not be carried forward to future tax years.

Tax benefits

The American Opportunity credit directly offsets up to $2,500 of federal income tax liability with $1,000 allowed as a refund. There are no state tax benefits.

Interaction with other programs

Taxpayers may not claim both the American Opportunity credit and the Lifetime Learning credit for the same student in one tax year, but may claim the American Opportunity credit during the first four years of a student's postsecondary education and the Lifetime Learning credit in any following years. Taxpayers may not claim the American Opportunity credit for higher education expenses paid for with proceeds from the sale of qualified U.S. savings bonds if the taxpayer chooses to deduct the bond interest income as allowed under the Education Savings Bond program. Students may pay for expenses not counted towards claiming the American Opportunity credit with funds withdrawn from a Qualified Tuition Program (QTP) savings plan or from a Coverdell ESA. Taxpayers may claim the American Opportunity credit for expenses paid with funds obtained through a student loan, with the interest on the loan allowed as an income tax deduction at the time the loan is repaid. The amount of American Opportunity credit claimed does not reduce the amount of state financial aid for which the student is eligible.


The American Opportunity credit is subject to an income-based phaseout. For tax year 2016, the credit is phased out for married taxpayers with modified adjusted gross income (AGI) between $160,000 and $180,000, and for single filers (generally students) and heads of household (generally single parents of students) with modified AGI between $80,000 and $90,000. Taxpayers with modified adjusted gross income above the phase-out may not claim the American Opportunity credit. Modified adjusted gross income equals adjusted gross income plus foreign earned income, housing costs of individuals living abroad, and income from sources within Puerto Rico and U.S. territories.

March 2016