American Opportunity Tax Credit

The American Recovery and Reinvestment Act of 2009 created a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). 40% of the credit is refundable.