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Tax Credits & Deductions

Tax Credits

The American Opportunity Credit allows taxpayers to take up to a maximum credit of $2,500 for education expenses for each qualifying student. This credit equals 100% of the first $2,000 and 25% of the next $2,000 of qualified expenses. The full credit is available to individuals with a modified adjusted gross income of $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit.

Generally, you can take the American Opportunity Credit for a student if all of the following apply:

  • As of the beginning of the tax year, the student had not completed the first 4 years of postsecondary education as determined by the eligible educational institution.
  • The student was enrolled during the tax year in a program that leads to a degree, certificate, or other recognized educational credential.
  • The student was taking at least one-half the normal full-time workload for his or her course of study for at least one academic period during the tax year.
  • The student has not been convicted of a felony for possessing or distributing a controlled substance.

If all of the above conditions are not met, you may be able to take the Lifetime Learning Credit for all or part of that student's qualified education expenses instead.

A Lifetime Learning Credit of up to $2,000 can be claimed for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. The amount of the credit equals 20% of qualified expenses paid, up to a maximum of $10,000 of qualified expenses per return. The amount of your credit is gradually reduced if your modified adjusted gross income is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a credit if your modified adjusted gross income is $60,000 or more ($120,000 or more if you file a joint return).

A taxpayer cannot claim both American Opportunity Credit and Lifetime Learning Credits for the same student in one year. However, if you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the Hope or American Opportunity Credit for one student and the Lifetime Learning Credit for another student in the same year. Thus, the Lifetime Learning Credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

Generally, you can claim the Lifetime Learning Credit if all three of the following requirements are met:

  • You pay qualified education expenses of higher education.
  • You pay the education expenses for an eligible student.
  • The eligible student is yourself, your spouse or a dependent for whom you claim an exemption on your tax return.
Education credits are claimed on IRS Form 8863.

Tax Deductions

Taxpayers not eligible for the American Opportunity or Lifetime Learning Credits may be eligible for a Tuition and Fees Deduction. The qualified expenses must be for higher education. This deduction, reported on IRS Form 8917, can reduce the amount of your income subject to tax by up to $4,000.

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:

  • You pay qualified education expenses of higher education.
  • You pay the education expenses for an eligible student.
  • The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

You cannot claim the tuition and fees deduction if any of the following apply:

  • Your filing status is married filing separately.
  • Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the deduction even if the other person does not actually claim that exemption.
  • Your modified adjusted gross income is more than $80,000 ($160,000 if filing a joint return).
  • You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes.
  • You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid.

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