The American Opportunity Tax Credit can be claimed for expenses for the first four years of post-secondary education. It is a tax credit of up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year. Of the total credit amount, 40%, a maximum of $1000, is refundable. The remaining 60% is nonrefundable.
The terms "qualified tuition" and "related expenses" include expenditure for course materials such as books, supplies and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. The credit does not cover room, board, transportation, or medical insurance.
The credit begins to phase out for individuals whose modified adjusted gross income is between $80,000 and $90,000, or between $160,000 and $180,000 for joint filers. The credit is phased out for taxpayers with incomes above these levels.
The credit is claimed using Form 8863 Education Credits (American Opportunity and Lifetime Learning Credits). TaxAct will generally determine which education benefit is most advantageous for your Federal return based on the data entered on your return, such as income, filing status, amount of qualified expenses, etc.