The American Opportunity tax credit was instituted as a substitute for the already existing Hope credit which allowed for parents of adult children attending college to take up to a 2500 dollar tax credit for the expenses they incurred paying for secondary education. This credit was also allowed by adults attending education paying their own expenses as well. It was instituted in 2009 as part of the recovery plan. The American opportunity tax credit only covers the costs of education for tuition and books. The credit does not cover housing expenses.
The American opportunity tax credit was originally set to expire as part of the end of the Bush-era tax cuts. The expiration date however has been set forward another 5 years due to the fiscal cliff ending deal that passed congress. Now more Americans can take benefit of this education-only credit. The American opportunity tax credit applies as long as the student maintained half-time attendance in any secondary school whether a university, vocational school, or community college.
The credit may only be claimed by each eligible student once per year. Households with two students may only claim the same credit for both students. Note that the American Opportunity tax credit does not cover post-secondary education such as masters or doctorate degrees nor does it cover any student who has already completed four years of college.
Since the IRS does not require households to reduce qualified expenses such as borrowed funds, grants or scholarships, student tax credits can really help many households reduce the high costs of education and push forward with the American dream.