American Opportunity Credit

Congress wrote the law by substituting the number 4 wherever the number 2 existed in current law. This means that the credit is only available for a maximum of 4 tax years and is only available for the first 4 years of post-secondary education. You can take the AOC as long as the eligible student is classified as either a freshman, sophomore, junior or senior by the school and you have not already taken the Hope or AOC for 4 tax years. As the Hope was only available for 2 tax years, no one has used up their 4 tax years.

This also means that you can pick whichever years you want to use as long as the eligible student has not gone beyond being classified as a senior. But please note, that the AOC currently expires after tax year 2010.

But the status is based on the *beginning* of the tax year, not the end. You could be entering your fifth year in autumn semester 2010, yet still not have completed four years of undergraduate schooling by the beginning of 2010.

What if the school does not officially map students to a "freshman, sophomore, junior or senior" status? (Where would this be, on the transcript?) Do you take total credits to graduate, divide by four, then see what slot the student fell into as of the beginning of the tax year?

According to IRS Form 886-H-AOC, the supporting documents they are focusing on relate to dollar amounts, not eligibility year-by-year.

There are probably still a heck of a lot of students in their 5th or 6th calendar year of college during these two tax years.

-Mark Bole

THANKS for your help! Yes, who knows if it will be around after 2010, and if it is not around after 2010, then at least the taxpayer got their use out of it by using it in 2009 and 2010 :)

Cathy

An eligible student was defined in the Final regulations

1.25A-3(d). As the only change was a "2" to a "4", one can rely on the Regs by merely changing "first two years" to "first four years". Here is the relevant part:

(iii) Year of study requirement. As of the beginning of the taxable year, the student has not completed the first two years of postsecondary education at an eligible educational institution. Whether a student has completed the first two years of postsecondary education at an eligible educational institution as of the beginning of a taxable year is determined based on whether the institution in which the student is enrolled in a degree program (as described in paragraph (d)(1)(i) of this section) awards the student two years of academic credit at that institution for postsecondary course work completed by the student prior to the beginning of the taxable year. Any academic credit awarded by the eligible educational institution solely on the basis of the student's performance on proficiency examinations is disregarded in determining whether the student has completed two years of postsecondary education;

So... unless the school awards a student four years of academic credit by the beginning of the taxable year, the student would still be eligible.

Certainly there is wiggle room in how one interprets that. However, it is quite clear to me, that a student who is enrolled for at least half-time (as defined by the school) for at least one academic period in the tax year could remain an eligible student for a lot of calendar years before accumulating the equivalent of around 124 semester credits.