Can I Get AOTC From a Foreign Country?

This article explores whether you can claim the American Opportunity Tax Credit (AOTC) for educational expenses incurred in a foreign country. It examines the eligibility criteria for claiming the AOTC, specifically focusing on the requirement for the educational institution to be recognized as “eligible” by the IRS, and provides insights into how U.S. taxpayers can utilize this credit while studying abroad. It also touches upon other tax considerations relevant to U.S. taxpayers abroad, such as the Foreign Earned Income Exclusion and double taxation agreements.

What is the AOTC and Who Can Claim It?

The American Opportunity Tax Credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you. The amount of the credit is 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of qualified education expenses you paid for that student.

To be eligible for AOTC, the student must:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

To claim AOTC, you must complete Form 8863 and attach the completed form to your tax return.

Can You Claim AOTC for Foreign Institutions?

Yes, you can claim the AOTC for educational expenses incurred at a foreign institution, but only if that institution is recognized as an “eligible educational institution” by the IRS. An eligible educational institution is one that participates in the U.S. Department of Education’s federal student aid programs. To be eligible to claim the AOTC, the law requires a taxpayer to have received Form 1098-T, Tuition Statement, from an eligible educational institution, whether domestic or foreign.

If a student’s educational institution isn’t required to provide Form 1098-T to the student, you may claim a credit without Form 1098-T if you otherwise qualify by showing that you were enrolled at an eligible educational institution and can substantiate the payment of the qualified tuition and related expenses.

What Expenses Qualify for the AOTC?

The AOTC covers specific education-related costs, such as:

• Tuition and mandatory enrollment fees
• Required course materials like books and supplies

Housing costs, transportation, and personal expenses typically do not qualify.

Additional Considerations for U.S. Taxpayers Abroad

If you are living or working abroad while claiming the AOTC, there are additional tax considerations to keep in mind:

• Foreign Earned Income Exclusion (FEIE): If you exclude foreign-earned income from your taxable income using FEIE, this could impact your ability to claim certain tax credits like the AOTC.
• Currency Conversion: Expenses paid in foreign currency must be converted into U.S. dollars using IRS-approved exchange rates.
• Double Taxation Agreements: If you are paying taxes in both your host country and the U.S., check whether your tax treaty affects your eligibility for credits like the AOTC.

You may not claim the AOTC unless you, your spouse (if you are filing a joint return) and the qualifying student have a valid taxpayer identification number (TIN) issued or applied for on or before the due date of the return (including extensions). A TIN is a Social Security number, an individual taxpayer identification number (ITIN), or an adoption taxpayer identification number (ATIN).

To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

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