The American Opportunity Tax Credit (AOTC) is one of the most valuable tax breaks available to college families and one of the most misunderstood.
The credit covers 100 percent of the first $2,000 in qualified expenses, tuition, fees, books, and required supplies, plus 25 percent of the next $2,000, for a maximum of $2,500 per year. It applies to the first four years of college only. Up to $1,000 of it is refundable, meaning a family can receive that amount back even if no taxes are owed.
Who claims it matters. If parents claim the student as a dependent, the parents claim the AOTC on their return. If the student files without being claimed as a dependent, the student claims it. In most cases, parents benefit more, they typically owe more tax and get more value from the credit.
Income limits apply. The full credit is available to married filers earning up to $160,000; it phases out completely at $180,000. Single filers phase out between $80,000 and $90,000.
Worth running the numbers both ways before filing.
