The American Opportunity Tax Credit for 2018, 2019 and 2020 is Now Available for Puerto Rico Residents

Eligible individuals can claim their AOTC tax credit, of up to $1,000, through their 2020 tax return.

The American Opportunity Tax Credit (AOTC) is an income tax credit for qualified education expenses paid to each eligible student for the first four (4) years of post-secondary education (colleges and institutes).

An amendment to Section 24A(i)(A) of the U.S. Internal Revenue Code of 1986, through Public Law 114-113 of December 18, 2015, known as the "Protecting Americans from Tax Hikes (PATH) Act of 2015," has extended the AOTC benefits indefinetly (previously through tax year 2017). Now, eligible students who are bona fide residents of Puerto Rico and who are enrolled in a qualifying college or institute in the Island, may claim the AOTC, of up to $1,000, for tax years 2018, 2019, and 2020.   

The Puerto Rico Treasury Department (PRTD) and the Internal Revenue Service (IRS) developed a plan that includes guidelines for the application and distribution of the AOTC for students in Puerto Rico. The guidelines are available in PRTD's Internal Revenue Circular Letter 21-02 (CC RI 21-02). The following are the most frequently asked questions on the AOTC tax credit.

Which students qualify for the AOTC?

An individual resident of Puerto Rico who meets all of the following criteria for the tax year for which the tax credit is claimed:

  • Has not completed his/her first four (4) years of college studies yet, at the beginning of the taxable year;

  • Is enrolled in an eligible educational institution, in a program leading to a degree, certification, or other recognized post-secondary educational credential;

  • Was enrolled and studied for at least one academic period beginning in the taxable year for which the credit is claimed and had at least half (1/2) of the normal full-time academic load in courses leading to a degree;

  • Has not claimed the AOTC for more than four (4) taxable years on a Puerto Rico or on Federal individual income tax return, including the return for the taxable year for the which the credit is claimed;

  • Has not been convicted of a crime for the possession or distribution of controlled substances before the end of the taxable year for which the credit is claimed and

  • Has a valid identification number (SSN or ITIN).

The tax credit may be claimed by the taxpayer, his/her spouse, children or any dependent.

Which expenses are eligible for the AOTC?

  • Tuition costs;

  • Fees and costs of materials (including books, supplies, and equipment, among others) which the eligible educational institution requires for enrollment or attendance. The plan excludes tuition costs for classes nonacademic and extracurricular fees such as room and board expenses, medical insurance costs, medical expenses, transportation, student activity fees, athletic fees, or any other expenses unrelated to an student academic course of instruction.

  • The eligible educational expenses will be reduced by the amount of expenses paid for by any educational assistance program, if any, including scholarships, grants, and awards, including the Federal Pell Grant.

The AOTC tax credit covers books, tuition, and other eligible expenses

How much is the AOTC per Student?

The maximum amount of the AOTC is $1,000 which is 40% of the sum of 100% of the first $2,000 eligible educative expenses and 25% of additional eligible educative expenses up to $2,000 (40% ($2,000 x 100% plus $2,000 x 25%).

Taxpayers with an adjusted gross income of more than $80,000 ($160,000 in case of a married couple filing jointly) can claim this tax credit, but the $1,000 maximum amount of the credit will be reduced according to a formula provided by the PRTD in CC RI 21-02. However, if the taxpayer's adjusted gross income is $90,000 or more ($180,000 in case of a married couple filing jointly), he or she is not eligible to claim this tax credit.

How can I claim the AOTC for 2018, 2019, and 2020?

If a taxpayer intends to benefit from the AOTC, then he or she must claim the credits for 2018, and 2019 tax years together with the tax credit for year 2020. In Puerto Rico, income tax returns for year 2020 are due on April 15, 2021. Here are the forms of the Puerto Rico individual’s income tax return for 2020 that must be completed to claim the credits:

  • Schedule B2 Individual - American Opportunity Credit for Tax Year 2020

  • Schedule B2.1 Individual - American Opportunity Credit for Tax Year 2018

  • Schedule B2.2 Individual - American Opportunity Credit for Tax Year 2019

Eligible students in Puerto Rico can now claim the AOTC tax credit

Which documentation must be included in the Puerto Rico tax return to claim the AOTC?  

The following documents must be submitted electronically, as part of the tax return, corresponding to each taxable year for which the credit is claimed (years 2018, 2019 and 2020):

  1. Official certification issued by the eligible educational institution, according to the PRTD requirements, or Form 1098-T "Tuition Statement;"

  2. Copy of the individual’s Criminal Record Certificate, issued by the Puerto Rico Police Department. It must not be more than three (3) months old as of the corresponding return's filing date;

  3. A schedule in which the eligible expenses are broken down, including the date of purchase, name of the business, description of the item purchased, and the total price paid must. Said schedule must be accompanied by the purchase receipts and a copy of the syllabus or document of the eligible educational institution requiring the school materials.

Who cannot claim the AOTC?

  • Individuals who are not bona fide residents of Puerto Rico

  • Individuals who are dependent or are eligible to be a dependent on a Puerto Rico or federal return

  • Individuals who have an adjusted gross income equal or greater than $90,000 ($180,000 in the case of married taxpayers filing a joint return)

  • Married individuals filing separate returns

  • Individuals without a valid identification number

Our tax advisors can help with this and other tax-related topics. Contact them by email at [email protected] or phone at 787-751-6164.