Tax and Financial Articles

Improved Education Tax Credit for 2009 and 2010 - Part 1

The American Opportunity tax credit created a new and improved HOPE credit that may allow you to turn part of the higher education expenses you incur for yourself, your spouse, or your dependents into tax savings.

The maximum credit allowed is $2,500 per student (for both 2009 and 2010) for the first four years of undergraduate education at an eligible educational institution. Generally, eligible educational institutions are accredited schools offering credit toward a bachelor’s or associate’s degree or other recognized post-high school credential, and certain vocational schools.

The American Opportunity tax credit is available only for the qualified tuition and related expenses of an eligible student, i.e., a student who’s enrolled in a degree or certificate program at an eligible educational institution on at least a half-time basis, and who has never been convicted of a federal or state felony drug offense.

A taxpayer may claim an American Opportunity tax credit and exclude from gross income amounts distributed from a Coverdell education savings account (formerly called an education IRA) or 529 plan for the same student, as long as the distribution isn’t used for the same educational expenses for which a credit was claimed.

In order to be eligible for the American Opportunity tax credit for a tax year, qualified tuition and related expenses must be paid during that tax year for education furnished during an academic period (e.g., semester) that starts within that tax year or within the first three months of the following year. Under this rule, taxpayers have a timing option. For example, for a semester beginning in Jan. of Year 2, a taxpayer may pay the expenses in Year 1 or Year 2. The credit will be available in whichever year the payment is made.

If you have questions about this credit or any other tax issue, please feel free to contact our offices at 561-624-2118. We are located in Jupiter, Palm Beach County. Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants. The firm provides tax, accounting, and consulting services to clients throughout South Florida and the United States. We provides tax, accounting, and consulting services to clients throughout South Florida, North Palm Beach and Palm Beach County.