In 2009, as part of American Recovery and Reinvestment Act of 2009, several positive changes have taken effect for you. The most obvious change has been the name change of the Hope Scholarship Credit to American Opportunity Tax Credit (also refereed as AOTC in rest of the article)
The new changes modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher income and those who owe no taxes. Here’s the review of how new the changes are better compared to old one.
1.) In past year, the qualified educational expenses defined under Hope credit included Tuition, and required fees. However, under the new changes, you may claim tuition, required fees, and course materials as well. The course materials include text books, supplies, and equipment needed for a course of study.
2.) Credit Calculation: Under Hope credit, it is 100% of first ,200 and 50% of next ,200 of expenses. Under AOTC, it is 100% of first ,000 and 25% of next ,000 of expenses.
3.) Maximum Credit: Under Hope, it is ,800 and under AOTC, you get maximum credit up to ,500.
4.) Years Allowed: First 2 years of post secondary education under Hope and first 4 years of post secondary education under AOTC.
5.) Income Phase-out Ranges: Under Hope tax credit, the income phase-out range is ,000 to ,000 for single filers and ,000 to 116,000 for joint filers. Under the AOTC this phase-out range is ,000 to ,000 for single filers and 0,000 to 0,000 for joint filers. This means the new tax credit is made available to taxpayers with higher income as well.
6.) Offset to AMT: Under Hope tax credit, the tax credit was not offsetting Alternative Minimum Tax (AMT) whereas AOTC does offset Alternative Minimum Tax (AMT).
7.) Refundable Credit: Hope tax credit is not refundable tax credit whereas AOTC is a refundable tax credit up to 40% (,000). It means that refund can be greater than amount of calculated tax.
8.) Only tax payers qualify for these tax breaks. If you are claimed as a dependent on someone else’s tax return, that person may qualify for tax break. A taxpayer may qualify if the he or she is paying for higher education costs for the taxpayer or their dependents, AND the tax payer’s 2009 modified adjusted gross income is within IRS defined limits.
The Lifetime Learning Credit is a tax credit for any person who takes college classes. There is no limitation on number of years Lifetime Learning Credit can be claimed. It provides a tax credit of up to ,000 on the first ,000 of college tuition and fees. Unlike the American Opportunity Credit, you need not be enrolled at least half-time.