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Form 8867 – Due Diligence for Claiming the American Opportunity Credit

For each student who qualifies for the American opportunity credit, the taxpayer may be able to claim a credit of up to $2,500 for the adjusted qualified education expenses. The credit equals 100% of the first $2,000 and 25% of the next $2,000 of adjusted qualified education expenses paid for each eligible student.

Eligibility for the credit depends on the modified adjusted gross income (MAGI) on the tax return, which is equal to the adjusted gross income plus certain deductions and exclusions that may have been taken on the return: 

  • Foreign housing deduction
  • Foreign housing exclusion
  • Foreign earned income exclusion
  • Income exclusion by bona fide residents of American Samoa and Puerto Rico

The amount of the credit is gradually reduced beginning at a MAGI of $160,000 for MFJ returns ($80,000 for all others), and cannot be claimed if MAGI is more than $180,000 for MFJ returns ($90,000 for all others). 

Student qualifications. Generally, the American opportunity credit can be claimed for a student if all of the following requirements are met.

  • The student has a SSN, ATIN, or ITIN by the due date of the return (including extensions).
  • As of the beginning of the year, the student had not completed the first 4 years of postsecondary education (generally, freshman through senior years of college), as determined by the eligible educational institution (excluding academic credit awarded solely because of the student’s performance on proficiency examinations).
  • Neither the American opportunity credit nor the Hope scholarship credit has been claimed for this student for any four previous tax years by this or any other taxpayer.
  • For at least one academic period beginning or treated as beginning during the tax year, the student both …
    • was enrolled in a program that leads to a recognized credential, such as a degree or certificate; and
    • carried one-half or more of the normal full-time workload for his or her course of study.
  • As of the end of the year, the student hadn’t been convicted of a federal or state felony for possessing or distributing a controlled substance.

Paid tax return preparers must exercise due diligence to determine whether a taxpayer meets all of the eligibility requirements for the AOTC. Additionally, Form 8867 – Paid Preparer’s Due Diligence Checklist must be submitted with the tax return if the AOTC is claimed on the return.

A taxpayer might provide all the documents to substantiate the tuition and related expenses and still not receive the credit, as not all expenses qualify and one or more of the other requirements for the credit might not be met. Qualified tuition and related expenses are expenses required for enrollment or attendance at an eligible educational institution. Refer to Publication 970 for help in determining which tuition and expenses qualify.

Eligible educational institution. An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution, whether public or private, whether inside or outside the United States, that is eligible to participate in a student aid program run by the U.S. Department of Education. Eligibility information should be available from the school. The IRS maintains a list of eligible educational institutions here, however the list is not exhaustive, so the school should be queried if in doubt.

Form 1098-T. Generally, a student enrolled or attending an eligible educational institution will receive a Form 1098-T from the institution. In some situations, the institution isn’t required to furnish the student with a 1098-T, but that in itself doesn’t disqualify the taxpayer from being able to claim the credit. Form 1098-T reports the amount billed by the institution, or the amount the student paid to the institution, for qualified tuition and related expenses during the calendar year, as well as certain refunds and reimbursements and scholarships and grants processed and administered by the school. A student may claim the AOTC only for qualified tuition and related expenses actually paid during the calendar year. In some situations the student may not be able to claim a credit for the exact amount reported as paid or billed on Form 1098-T. See Publication 970 and the instructions for Form 8863 for more information on eligibility for the AOTC and on determining the expenses that qualify for the AOTC.

Additional Information:

Publication 970 – Tax Benefits For Education

Form 8863 – Education Credits

Form 8867 – Paid Preparers Due Diligence Checklist

Updated on September 9, 2020

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