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"American Opportunity" Tax Credit
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Replaces "Hope Scholarship" credit
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Available for 4 years of college
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100% of 1st $2,000 + 25% of next $2,000
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40% "refundable"
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Phases out at $80,000 / $160,000
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Section 529 plan withdrawals now available for computer and computer technology purchases (including internet access) |
Paying for college is a lot of families? worst nightmare. Have you ever found yourself wishing your kid wouldn?t get such good grades . . . So you won?t have to send them to an expensive college?
The economic stimulus act includes a couple of changes to the college tax credit rules. Under the old law, you could claim a ?Hope Scholarship? tax credit for your child?s first two years of post-secondary school. The credit itself was 100% of the first $1,200 in expenses, plus 50% of the next $1,200 in costs, for a total of $1,800 per student per year. It phased out once your adjusted gross income topped $40,000 for single filers and $80,000 for joint filers. And after two years of school, you had to settle for a less-generous ?Lifetime Learning? credit of just $1,000 per student.
The new law expands the ?Hope Scholarship? credit and renames it the ?American Opportunity? credit. Now you get 100% of your first $2,000 in costs, plus 25% of your next $2,000 in costs, for a total credit of $2,500. The extra $700 is nice, but the real benefit is a higher phase-out. Now the credit doesn?t start phasing out until your adjusted gross income tops $80,000, or $160,000 if you?re married filing jointly. And the credit is good for four years. And now you get the more generous credit for four years of school, not just two.
The new credit is even 40% ?refundable,? which means that if you owe no other tax, you can still claim 40% of the credit by filing your return.
Some of you may be using ?Section 529? plans to save for your kids? college. These plans let you set money aside for college, and withdraw earnings tax-free if you use them for qualified college costs. The new law now lets you use withdrawals for computers and computer equipment, including online access.
With markets where they are right now, you may actually have less in your 529 plan than you initially invested. It may be possible to claim a tax break for those losses. If you shut down the account, you can deduct the loss as a ?miscellaneous itemized deduction. But there?s a special limit to this deduction based on your adjusted gross income, and you can?t claim it if you?re subject to the Alternative Minimum Tax. So if you?ve put money in a 529 plan and watched your account value go down, come in to discuss whether this might make sense.
