Education Credit “Years”

Most high schoolers graduate in June, and then if attending post-secondary classes, they start that Fall with the first half of their freshman year.  A 4 year college degree therefore can span 5 tax years.

The American Opportunity Credit, which replaced the Hope Credit, is only available for 4 TAX YEARS and is available only for the first 4 years of postsecondary education.  There is a difference in what each of these “years” means.

If a student started in the Fall semester of 2006, and then continued through 2007, 2008, 2009, graduating in the Spring of 2010 (or anytime in 2010), we’ve just spanned 5 tax years.  However, we’ve only spanned 4 years of postsecondary education – Freshman, Sophmore, Junior and Senior years.  Do you see the difference?

If the Tuition Deduction were claimed in any of those years, then the Hope Credit or American Opportunity Credit were not claimed, because you can’t claim both in the same year.  The Tuition Deduction was extended through December 31, 2010 with the latest round of tax changes signed into law in late December 2010. 

Therefore, if the student has completed only 3.5 years of postsecondary education (not yet completed 4) and hasn’t used all 4 TAX YEARS of either the Hope or American Opportunity Credits before 2010 (by virtue of using the Tuition Deduction in one or more of those intervening years), then you can take the American Opportunity Credit for 2010. 

See IRS Publication 970 for all of the details on Education Credits and the Tuition Deduction.  http://www.irs.gov/pub/irs-pdf/p970.pdf , especially pages 8 and 12 for discussion on the definition of “years” and page 13 for the flowchart to see if the student is eligible.