Under the American Recovery and Reinvestment Act (ARRA), more
parents and students will qualify over the next two years for a tax
credit, the American Opportunity Credit, to pay for college expenses.
The American Opportunity Credit is not available on the 2008 returns
taxpayers are filing during 2009. The new credit modifies the existing
Hope Credit for tax years 2009 and 2010, making the Hope Credit
available to a broader range of taxpayers, including many with higher
incomes and those who owe no tax. It also adds required course
materials to the list of qualifying expenses and allows the credit to
be claimed for four post-secondary education years instead of two. Many
of those eligible will qualify for the maximum annual credit of $2,500
per student.
The full credit is available to individuals whose modified adjusted
gross income is $80,000 or less, or $160,000 or less for married
couples filing a joint return. The credit is phased out for taxpayers
with incomes above these levels. These income limits are higher than
under the existing Hope and Lifetime Learning Credits.