If you paid for college for yourself, a dependent or a spouse this year, you may be able to claim an education tax credit on your tax return. Education tax credits can help you afford college by reducing your tax liability and letting you save on your tax bill.
There are two different types of education tax credits with their own eligibility requirements. The right credit for you depends on a few different factors. Here’s what you need to know.
What are Education Tax Credits?
Education tax credits can be claimed on your tax return and reduce your tax bill by thousands of dollars for any year in which you incurred eligible college expenses. These tax benefits can help alleviate the cost of higher education.
Types of Education Tax Credits
There are two types of education tax credits: the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC). Each credit has its own eligibility requirements, but you must meet the following requirements to use either:
- The student is yourself, your spouse or a dependent claimed on your tax return.
- You or your dependent paid for qualified education expenses that are required for enrollment or attendance at an eligible educational institution for the academic period beginning during the applicable tax year or the first three months of the subsequent tax year.
- The student must be enrolled at an eligible institution (including public, nonprofit or private colleges, universities, trade schools, or other post-secondary institutions).
You cannot claim both tax credits in the same year for the same student or the same expenses. However, you can claim both tax credits for different students on your tax return.
American Opportunity Tax Credit
The AOTC can lower your tax bill up to $2,500 per student. The credit applies to 100% of the first $2,000 of qualified expenses including tuition, fees and course materials, and up to 25% of the next $2,000 of qualified expenses. If you paid at least $4,000 for qualified expenses, you can be eligible to claim the full $2,500 credit.
To claim the AOTC, the student must meet the previously stated requirements and:
- Be pursuing a degree or other recognized credential.
- Be enrolled at least half time for at least a single academic period that begins within the tax year.
- Not have already 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 years.
- Not have a felony drug conviction by the end of the tax year.
- Be enrolled at least half time for at least one academic period beginning in the tax year.
Students can claim the tax credit on their own tax returns as long as they aren’t claimed as a dependent on someone else’s tax return. Parents can claim the credit if they paid for qualified expenses and claimed the student as a dependent on their tax return.
To claim the full AOTC amount, your modified adjusted gross income (MAGI) must be $80,000 or less (or $160,000 or less for taxpayers who are married filing jointly). If your MAGI falls between $80,000 and less $90,000 (or between $160,000 and less than $180,000 for joint filers), your credit can be reduced. If your MAGI is above $90,000 (or $180,000 for joint filers), you cannot claim the AOTC.
Lifetime Learning Credit
The LLC can lower your tax bill up to $2,000 for a single student. The credit applies to 20% of the first $10,000 of qualified expenses (tuition and fees only), for a maximum of $2,000.
To claim the LLC, the student must meet the previously stated requirements and:
- Be enrolled for at least one academic period beginning in the applicable tax year.
- Be taking higher education courses to get a degree or other credential or to improve job skills.
There is no limit to the number of times you can claim the LLC. It works for undergraduate, graduate and non-degree or vocational courses.
You can claim the full LLC if your MAGI is less than $80,000 ($160,000 for joint filers). If your MAGI falls between $80,000 and $90,000 ($160,000 and $180,000 for joint filers), your credit can be reduced. If your MAGI is $90,000 or more ($180,000 for joint filers), you cannot claim the LLC.
How to Claim Education Tax Credits
Your school sends you a Form 1098-T tuition statement with the expenses you paid for the year. You can use that form to file your tax return and claim an education tax credit. For other eligible expenses allowed by the AOTC, you may need to include other documentation. For both tax credits, you need to complete Form 8863 and attach it to your tax return.
The AOTC and the LLC can help you save money by reducing your tax bill when you pay for qualifying education expenses for an eligible student. Read the requirements carefully to understand if you are eligible and determine which tax credit is best for you.
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What is the difference between the American Opportunity Credit and the Lifetime Learning Credit?
The AOTC only covers the first four years of post-secondary education, while the Lifetime Learning Credit works for grad school and non-degree or vocational education. The AOTC requires the student to attend school at least half the time, while the Lifetime Learning Credit doesn’t.
The AOTC can be claimed per student, while the LLC can only be claimed once per year. The AOTC provides up to $2,500 in tax credits, while the LLC covers up to $2,000 in tax credits.
Can I claim both the American Opportunity Credit and the Lifetime Learning Credit in the same tax year?
You can claim these credits on the same year’s tax return, but not for the same student or the same expenses. For example, if you have two dependents on your tax return with qualifying education expenses, you can use the AOTC for one dependent and the LLC for the other.