Napier & Company, LCC

The New, Improved College Tax Credit

There is a new college tax credit for 2009 and 2010 that may put extra dollars in your pocket. This new credit expands the old Hope Credit so that many more families may qualify for the credit benefit.

The important facts to know about the new American Opportunity Tax Credit are:

• This credit can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials. The new credit can be claimed for four post-secondary education years.

• The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 spent per student each year. The full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an undergraduate going to school more than half of the time.

• The full credit is available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually phased out for those whose earnings are higher than those amounts. The higher limit for earnings and the increased credit will be a boon to many families.

• Forty percent of the credit is refundable, so those who owe no tax can get up to $1,000 back for each eligible student.

• You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You can take either the credit or the deduction, whichever is more beneficial for you.