Under the American Recovery and Reinvestment Act (ARRA) signed into law by President Obama on February 17, 2009, textbook and other course material expenses incurred in 2009 and 2010 that are not covered by scholarship or grant aid may be counted towards the newly created tax credit called the American Opportunity Tax Credit on that year’s tax return.

According to the IRS, the new credit temporarily replaces and expands the previous Hope Credit for tax years 2009 and 2010, making the American Opportunity Tax Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.

It also:

• Adds required course materials to the list of qualifying expenses
• Allows the credit to be claimed for the first four post-secondary education years instead of two

Many of those eligible will qualify for the maximum annual credit of $2,500 per student, which is more than $700 higher than the old Hope Credit, and, for the first time, will provide a partial refund of up to $1,000.