Concise Takeaway
Two higher‑education credits are available: the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). A taxpayer may claim one credit per student per year, based on qualified education expenses, MAGI limits, and student eligibility.
Who Can Claim an Education Credit
A taxpayer may claim an education credit when:
- They pay qualified education expenses
- The expenses are for an eligible student
- The student is the taxpayer, spouse, or dependent
A taxpayer cannot claim a credit if:
- Filing status is married filing separately
- They are claimed as a dependent
- MAGI exceeds the phaseout limit
- They or their spouse is a nonresident alien without electing resident status
- They claim both credits for the same student in the same year
MAGI Phaseout
Both credits phase out when MAGI is:
- $80,000–$90,000 (single, HOH, QSS)
- $160,000–$180,000 (MFJ)
No credit is allowed above the upper limit.
Qualified Education Expenses
Qualified expenses include:
- Tuition
- Required enrollment fees
- Required course materials
Books, Supplies, Equipment
- AOC: Includes books, supplies, and equipment needed for the course, even if not purchased from the institution
- LLC: Includes only materials required to be paid to the institution
Expenses That Do Not Qualify
- Room and board
- Insurance
- Medical expenses
- Transportation
- Nonacademic fees
- Sports, games, or hobby courses unless part of a degree program or job‑skills training (LLC only)
Adjustments Required
Reduce qualified expenses by:
- Tax‑free scholarships
- Grants
- Employer assistance
- Refunds
Form 1098‑T provides tuition and scholarship information.
American Opportunity Credit (AOC)
The AOC provides up to $2,500 per eligible student:
- 100% of the first $2,000
- 25% of the next $2,000
Key Rules
- Available for the first four years of postsecondary education
- Student must be enrolled at least half‑time for one academic period
- Up to 40% refundable (maximum $1,000)
- Not available if the student has a felony drug conviction
Lifetime Learning Credit (LLC)
The LLC provides up to $2,000 per return:
- 20% of the first $10,000 of qualified expenses
Key Rules
- Available for unlimited years
- Can be used for any level of postsecondary education
- Includes courses to acquire or improve job skills
- Student does not need to be pursuing a degree
- No half‑time requirement
- Not refundable
Comparing the Credits
|
Feature |
American Opportunity Credit |
Lifetime Learning Credit |
|
Max credit |
$2,500 per student |
$2,000 per return |
|
Refundable? |
40% refundable |
Nonrefundable |
|
Years available |
First 4 years only |
Unlimited |
|
Enrollment |
At least half‑time |
One or more courses |
|
Degree required |
Yes |
No |
|
Felony drug rule |
Applies |
Does not apply |
|
Books/supplies |
Any required materials |
Only if required to be paid to institution |
Education Credit Flow Summary
- Identify eligible students
- Determine qualified expenses
- Reduce expenses for tax‑free assistance
- Apply MAGI phaseout rules
- Choose AOC or LLC per student
- Claim credit on Form 8863