Could The American Opportunity Credit Be Cut Out?

Republicans and Democrats are locked in a battle over how to cut spending and raise revenue to avoid the "fiscal cliff." This could mean meddling with tax deductions. For the next two weeks, Morning Edition is taking a closer look at individual deductions and tax credits that might be on the chopping block.

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(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")

DAVID GREENE, HOST:

As we head into the holiday season, political leaders are un-merrily locked in a battle over how to cut federal spending and raise revenue - and this could mean meddling with tax deductions that many Americans hold dear.

RENEE MONTAGNE, HOST:

So this week and next, we're taking a closer look at individual deductions and tax credits that might be on the chopping block.

(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")

GREENE: We're calling it our Twelve Days of Deductions. And today, a tax credit that the president holds dear. It's the American Opportunity Credit, it helps families pay for college tuition.

MARK LUSCOMBE: This one goes back to the 2009, so this is really was new with the Obama administration and it really enhanced a prior provision in the code called the Hope Credit.

GREENE: That's analyst Mark Luscombe of CCH, a unit of Wolters Kluwer, says the new credit boosted the maximum that families could receive - to $2,500.

MONTAGNE: It raised income limits and increased number of years you could receive the credit, from two to four. It also became refundable.

LUSCOMBE: A refundable credit, that means that basic you get the credit whether you owe any tax or not, so that helped low income tax payers.

MONTAGNE: And lawmakers will have to take action on this, because the American Opportunity Credit expires at the end of the year.

GREENE: Extending it would cost the government an estimated $10 billion. Now if there's no action, it automatically reverts back into the less-generous Hope Credit.

Tomorrow, we'll have a look at Section 179. That might sound a little bland, but it's a nice boost for businesses.

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