The American Opportunity Tax Credit

If you, your spouse, or dependent(s) attended postsecondary school and have not completed the first four years, you might be eligible to claim the American Opportunity Credit. This credit is per eligible student. If there are two eligible students on the return, then the credit can be claimed for both students.

The credit must be claimed for expenses paid during the relevant year. For example, you cannot claim the credit on your 2023 tax return if the expenses paid were for an academic period in 2022. The only exception is if expenses paid in 2022 were for an academic period that began in the first 3 months of 2023.

The IRS has four requirements that must be met by the qualifying student.

  1. The student must not have completed the first four years of postsecondary education.
  2. The credit must not have been claimed by you or anyone else for the student for any 4 tax years before the given tax year in which the credit is being claimed.
  3. The student must have been pursuing a degree, certificate, or recognized educational credential; and, must have been enrolled at least part-time as determined by the educational institution.
  4. As of the end of the tax year in which the credit is being claimed, the student must not have been convicted of a federal or state felony for possessing or distributing a controlled substance.

Once it’s been determined that the student and the educational institution are eligible for the credit, it’s time to add up the qualified expenses.

Qualified education expenses include any student activity fee that must be paid to the institution as a condition of enrollment. Books and supplies required for any course, whether paid to the institution or not, are also qualified expenses.

There are two important things to know when claiming this credit.

  1. Form 1098-T is mandatory. This form is issued to the student by the educational institution. So, whether you self-file or go to the a tax preparer, make sure you have access to this form.
  2. The taxpayer bears the burden of proof whenever a credit is claimed. This means that the taxpayer must keep records to substantiate the eligibility of the student and institution, as well as the qualified expenses paid.