The American Opportunity Credit (or the saga of Robert and Laura)

The American Opportunity Credit is a tax credit of up to $2,500 for eligible undergraduate expenses. Forty percent of the credit is refundable, which means you can still claim part of the credit even if you have little or no tax liability.
This video is a rundown of who qualifies for the credit, how it is calculated, and how the credit is reported on the tax return.
The video follows Robert and Laura and their college student son Richard, through various scenarios illustrating how the American Opportunity Credit works.
2022 UPDATE:
The AGI phaseouts for the American Opportunity Credit for 2022:
(S, HOH, QSS) $80,000 - $90,000
(MFJ) $160,000 - $180,000
ADDTIONAL RESOURCES:
IRS Publication 970: "Tax Benefits for Education": www.irs.gov/pu...
IRS Form 1098T: "Tuition Statement": www.irs.gov/pu...
IRS Form 8863: "Education Expenses": www.irs.gov/pu...
Intro and background music: “Bluesy Vibes” - Doug Maxwell - KZbin Audio Library
DISCLAIMER:
The information presented in this video is for informational and educational purposes only, and is not intended to render tax advice for specific situations. If you have questions about your specific tax situation, please consult the resources linked above or consult with a qualified tax professional in your community.
The information contained in this video is based on tax law and IRS regulations as of the date of publication, and may be subject to change.

[@LA2JERSEY]

Really appreciate you show various situations. Thank you! Please share more examples for learning purpose?

[@TheTaxGeek]

I have been considering making supplemental videos for certain concepts with additional examples, so thanks for the suggestion.

[@drilldesign909]

oh, yeah, I know them...Rob and Laura Petrie of New Rochelle, New York...I enjoyed their TV program back in the 60s! 😂

[@plantingseedsproductions4195]

Great content. Found my go to tax channel! Thanks

[@JeimyBautista]

HI, I was wondering. I claimed the tax credit in 2021, and have technically been in school for over four years, but do not have any degree. This would be second year that I would claim. I also am confused about the wording "must not have completed 4 years of post-secondary education". The way I interpret that is that if I do not have the academic hours of four years then I should be eligible to claim it. Thank you!

[@TheTaxGeek]

Yes, you can claim the AOC. The important thing is that you don't (a) claim more than four AOC's and (b) You don't claim the AOC once you've received your bachelors degree.

[@losaguilar2640]

Hi! Thank you for such a great explanation! I still have not clear what happens when joint filers have AGI of $172,000? How is it calculated in this situation?

[@TheTaxGeek]

The credit would be reduced proportionally. If the taxpayer and spouse AGI were halfway between the low end of the phaseout and the high end of the phaseout, they would get 50% of the credit.

[@huyly6648]

Thank you for the great content! I am wondering if you could help me with the refundable part on line 7 where it lists additional conditions for under 24 years old student. I am currently 21 years old (full-time student) and criteria 2 and 3 both applicable to me (parent & married filling joint). In terms of the first criteria; however, my total earned income is MORE than half of my support. Am I still qualified for the refund part of AOTC? Thank you for your help!

[@TheTaxGeek]

This can be problematic. The reason for this restriction is so that parents who wouldn't qualify for the Credit because of income don't pass the Credit through to their children with lower incomes. This limited exception for people under 24 is to allow students who are largely self-supporting (or have deceased parents) to take the Credit. Do you fall into this category? It's usually beneficial for the entire family for the parents to claim the child as a dependent (which they can, in your case), and claim the Credit.

[@rchallender2493]

So I don't know if I'll get a response but I did have a bit of a clarification question about the AOTC! I am confused by the wording talking about the "must not have completed 4 years of post-secondary education". Does this phrasing imply that your only eligible for 4 consecutive years after beginning a 4 year degree? Like I have been going part time to college for a 4 year degree as a non tradition student (I'm currently 29) and am in my senior year (finally)!! I've only claimed the AOTC twice during my time in school (6 to 7 years), so does that mean I could claim the AOTC 2 more times as long as I don't graduate and am still a part-time student? Or would I be ineligible because It's taken me more than 4 consecutive years to get my degree? Sorry if that's confusing lol, I just feel like the phrasing on the IRS website is kind of confusing in the way they choose to phrase it. I know you probably can't get official tax advice but with your knowledge can you tell me how you interpret this specific requirement? Thanks for your video it was honestly very well put together and thorough!

[@TheTaxGeek]

Yes, there is definitely some ambiguity in the way the requirements are phrased. The interpretation I use in my practice is that no more than 4 AOCs can be claimed by any one person, so you should be able to claim it for any of four years you were at least a half-time student (the "at least half-time student" box is checked on the 1098T), up until you receive your undergraduate degree, and the years do not have to be consecutive. In the other years where you were less than a half-time student, you would still be able to take the Lifetime Learning Credit.

[@rchallender2493]

@@TheTaxGeek thank you so much for giving me your understanding on this! I had just filed my 2021 federal return and claimed the AOTC but after reading the wording after submitting I was freaking my self out that I commit fraud 😅. Getting a more knowledgeable persons opinion on this has quelled my nerves, so thank you so much, truly 🙏🏻!

[@Naturebeautifaul]

The total credit means that we get that amount paid back to us when we file our taxes, right?

[@TheTaxGeek]

I hope my explanation in the other comment clarifies how the Credit works.

[@Naturebeautifaul]

What does nonrefundable and refundable mean?

[@TheTaxGeek]

This will be the topic of a video in the near future. Nonrefundable tax credits may only reduce actual tax liability, and if the credit exceeds your tax liability, your credit is limited. For example: You are married filing jointly with an adjusted gross income of $28,000. After taking your $25,100 standard deduction, your taxable income is only $2,900 and your tax liability is only $290. If you qualify for a Lifetime Learning Credit (which is nonrefundable) of $1,000, your credit would be limited to just $290, reducing your tax liability to zero. If, for example you qualified for an American Opportunity Credit of $1,000, 60% of the credit, or $600, is nonrefundable, and again limited to $290. The remaining $400 is refundable, and would act as a payment and be refunded to you.

[@AllAmericanGuyExpert]

Thumbs down for not even mentioning a scholarship and the IRS tip associated with it.

[@TheTaxGeek]

The concept of claiming scholarship as income, to free up available eligible expenses for a higher AOTC is a subject that deserves a video all its own, which I plan on making.