How the American Opportunity Tax Credit Works

AOTC Eligibility

A student or other tax filer claiming a student as a dependent can take the full AOTC up to four years in a row. It comes with a variety of restrictions that people should be aware of before claiming the credit.

In order to be eligible for the credit, the student has to be pursuing a degree or another recognized credential. Advanced balloon animal crafting lessons probably aren't going to cut it, unless they're part of Florida State University's circus performing class. If your school sends you a Form 1098-T Tuition Statement in January, that means you're likely enrolled in an eligible program. The form details the tuition and other expenses that you've paid over the course of the previous year [source: IRS].

The student also has to actually be going to school. That means being enrolled at least part-time in at least one academic period during the tax year. The student can't have completed four years of post-secondary education at the time. He or she also can't have already claimed the credit in four previous years. And, as if college kids need another reason to steer clear of university and local cops, it can also help them catch a little break on their taxes. Students who have been convicted of a felony drug offense are not eligible for the AOTC [sources: IRS, IRS].

Taxpayers looking to claim the credit also have to meet certain income requirements. The full AOTC is available for a single filer who makes up to $80,000 ($160,000 for joint filers) in adjusted gross income over a year. Those who make between $80,000 and $90,000 ($180,000 for joint filers) can get a portion of the credit at a reduced rate [source: IRS].

That's a significantly higher income limit than the one in place for the other student tax credit, the Lifetime Learning Credit. That's not the only difference between the savings opportunities.