What is the American Opportunity Tax Credit?
The American Opportunity Tax Credit (AOTC) is a partially refundable tax credit of up to $2,500 each year for out-of-pocket higher education expenses including course materials, tuition, and fees for the first four years of college. First enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA), the credit was extended through tax year 2017 by the American Taxpayer Relief Act of 2012 (ATRA). The Credit is applied for by using form 8863.
The instructions may be found here.
The Internal Revenue Service Publication 970 (PDF) provides detailed information, useful examples and guidance on all of the educational benefits of the tax code, including the American Opportunity Tax Credit. If you have more specific questions, we strongly encourage you to consult the financial aid office of your institution, a qualified tax advisor or legal professional, or the IRS about your unique situation.
What course materials are eligible for the tax credit?
Under the AOTC "required" course materials are eligible for the tax credit as well as tuition and fees that have not been paid for by grant or scholarship aid. In other words, you may not receive a double benefit for your qualified expenses. Qualified ”course materials include 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. As a practical matter, it would be fair to assume that any purchased course materials identified as required and listed on a course book list for your registered classes would qualify for the tax credit.
What necessary documentation will we need for the tax credit?
According to the IRS, taxpayers should retain adequate documentation to prove education-related expenses, such as
transcripts or course descriptions that show periods of enrollment, list of course materials for your classes, cancelled
checks, and receipts that verify the amounts spent on tuition, books, supplies, and equipment used in a course of study.
IRS Publication 552 (Recordkeeping for Individuals)
addresses this issue.
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