If you’ve got a child preparing for higher education, you might be wondering what tax credits for college are available. The American opportunity tax credit (AOTC) is among the most valuable higher education tax benefits. Here’s an explanation:
- This tax credit (a direct reduction in your tax bill) equals 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of such expenses you paid for that student.
- The maximum annual credit is $2,500 per student.
- If the credit reduces your tax to zero, 40% of the remaining credit amount (up to $1,000) can be refunded.
- To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 for married couples filing jointly). Partial credits are available with MAGI up to $90,000 ($180,000 on a joint return).