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American Opportunity Tax Credit (AOTC) | Internal Revenue Service (Tax Year 2025)

Federal education credit for undergraduate study, with up to $2,500 per eligible student and up to $1,000 refundable.

JJ Ben-Joseph
JJ Ben-Joseph
💰 Funding Up to $2,500 per eligible student (up to $1,000 refundable)
📅 Deadline Apr 15, 2026
📍 Location United States
🏛️ Source Internal Revenue Service
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Status Update (February 2026)

This page is updated for tax year 2025 returns filed in 2026.

Core AOTC values remain:

  • Maximum credit: $2,500 per eligible student.
  • Refundable portion: up to $1,000 (40% of credit).
  • MAGI phaseout range: $80,000-$90,000 (single/most non-joint filers), $160,000-$180,000 (married filing jointly).
  • Standard filing deadline for 2025 returns: April 15, 2026.

What AOTC Covers

The American Opportunity Tax Credit helps families pay qualified undergraduate education costs during the first four years of postsecondary study.

The formula is:

  • 100% of the first $2,000 of qualified expenses, plus
  • 25% of the next $2,000 of qualified expenses

for a maximum of $2,500 per student.

Student Eligibility Rules

The student must generally:

  1. Be pursuing a degree or recognized credential.
  2. Be enrolled at least half-time for at least one academic period in the tax year.
  3. Not have completed the first four years of postsecondary education before the tax year.
  4. Not have claimed AOTC (or Hope credit) for more than four tax years total.
  5. Not have a felony drug conviction at year-end.

IRS instructions also require that the student’s taxpayer identification number be issued on or before the return due date (including extensions) for AOTC eligibility.

Qualified Expenses

Usually eligible:

  • Tuition
  • Required enrollment fees
  • Required course materials (books/supplies/equipment), including items not purchased directly from the school when IRS rules allow

Usually not eligible:

  • Room and board
  • Insurance and medical expenses
  • Transportation
  • Optional fees not required for enrollment

Tax-free educational assistance (scholarships, grants, certain employer assistance) generally reduces the amount of expenses you can use for AOTC.

How to Apply

  1. Collect your school’s Form 1098-T and your own payment records.
  2. Reconcile qualified expenses after subtracting tax-free assistance.
  3. Complete Form 8863 and attach it to your Form 1040.
  4. Verify dependency treatment (parent vs. student claim) before filing.
  5. Submit by April 15, 2026, or file an extension if needed.

If the form values and your records do not match exactly, document why before filing.

Coordination With Other Education Tax Benefits

  • You cannot claim AOTC and LLC for the same student in the same tax year.
  • You cannot use the same expense dollar for both AOTC and tax-free 529 treatment.
  • If parents claim the student as a dependent, parents generally claim the credit.

Because “double benefit” errors are common, map each dollar of tuition to exactly one tax treatment.

Post-Filing Adjustment Risk

If scholarships or school account adjustments are posted after filing, your AOTC calculation may need correction. Keep post-filing tuition account statements with your return records so you can determine whether an amended return is required.

When multiple aid sources apply, keep a per-semester worksheet showing gross tuition, reductions, and final AOTC-qualified expense amount. This prevents overlap errors if IRS asks for support.

Common Errors to Avoid

  • Claiming for a student who already used four AOTC years.
  • Failing to reduce expenses by tax-free scholarships/grants.
  • Filing without Form 1098-T support (except limited IRS exceptions).
  • Claiming AOTC for the wrong taxpayer when dependency rules differ from who paid.
  • Not filing Form 8862 when required after a prior disallowance.

Official Sources