761 / What is the Hope Scholarship (American Opportunity) Credit?

The Hope Scholarship (American Opportunity) Credit provides a credit for each eligible student equal to the sum of: (1) 100 percent of qualified tuition and related expenses up to $2,000; plus (2) 25 percent of qualified tuition and related expenses in excess of $2,000, up to the applicable limit. The applicable limit ($4,000) is two times the $2,000 amount.² AARA 2009 increased the credit amounts for 2009 and 2010 (later extended through 2012 and again early in 2013 by the American Taxpayer Relief Act of 2012 (“ATRA”) through 2017. This treatment was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH)).³ In earlier years, the amounts used to calculate the credit were adjusted for inflation and rounded to the next lowest multiple of $100.⁴ The maximum credit is now $2,500 ($2,000 + (25 percent × $2,000).

The credit is available for four years of postsecondary education (this provision was made permanent by PATH and applies for 2009 and thereafter), and can be used in only four taxable years.⁵ To qualify for the credit, the student must carry at least half of a full-time academic workload for an academic period during the taxable year.⁶

An eligible student generally means a student who: (1) for at least one academic period beginning in the calendar year, is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential and is enrolled in one of the first four years of postsecondary education (two years prior to 2009), and (2) is free of any conviction for federal or state felony offenses consisting of the possession of a controlled substance.⁷

Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer (for whom he is allowed a dependency exemption) at an “eligible education institution.”⁸ Qualified tuition and related expenses do not include nonacademic fees such as room and board, medical expenses (including required student health fees), transportation, student activity fees, athletic fees, insurance expenses, and similar personal, living or family expenses unrelated to a student’s academic course of instruction.⁹ Additionally, qualified tuition and related expenses do not include expenses for a course involving sports, games or hobbies, unless it is part of the student’s degree program.¹⁰ AARA 2009 expanded qualified tuition and related expenses to include required course materials, and PATH made this provision permanent.

An eligible educational institution generally means a postsecondary educational institution that: (a) provides an educational program for which it awards a bachelor’s degree, or a two-year program that would be accepted for credit towards a bachelor’s degree; (b) has at least a one year program that trains students for gainful employment in a recognized profession; (c) participates in a federal financial aid program under Title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program; or (d) meets requirements for certain postsecondary vocational, proprietary institutions of higher learning and certain institutions outside the United States. In any event, the institution must also be accredited or have been granted pre-accreditation status.¹¹

An academic period means a quarter, semester, trimester or other period of study (such as summer school session) as reasonably determined by an eligible educational institution.¹² See Q 763 for a discussion of the limitations and phaseouts applicable to the American Opportunity Credit.