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General Tax Info
 

The American Opportunity and Lifetime Learning credits are available to individuals for out-of-pocket tuition expenses incurred by students pursuing college degrees, graduate degrees or vocational training.

The American Opportunity Credit is new for 2009 and 2010, and revamps and expands the Hope Credit. The American Opportunity Credit now covers four years of post-secondary education, adds required course materials to qualifying expenses, makes the credit available at higher income levels, and increases the amount of the credit.

The Lifetime Learning Credit is available to students attending a post-secondary educational program and who are not eligible to take the American Opportunity Credit. Either the American Opportunity Credit or the Lifetime Learning Credit can be claimed for each eligible student, but you cannot claim both in any year.

Each student can elect whether to claim the American Opportunity or Lifetime Learning Credit, based on the credit with the most tax benefit.

  • The American Opportunity Credit is limited on a per-student basis.
  • The Lifetime Learning Credit is limited on a per-household basis.

The tuition and fees deduction is also available to eligible students. Either one of these credits or the deduction, but not both, may be taken for any student in a year.

 

American Opportunity Credit

For 2009 and 2010, the Hope Credit is greatly expanded and renamed the American Opportunity Credit. The credit is worth up to $2,500 per student for four years of post-secondary education, up from the Hope Credit's maximums of $1,800 and two years. The credit is now 40% refundable, up to $1,000, so it can benefit even those with no tax liability.

For individual taxpayers, the American Opportunity Credit phases out if modified adjusted gross income is between $80,000 and $90,000. For married filing joint, the credit phases out if MAGI is between $160,000 and $180,000. These limits are higher than the Hope credit's limits, making it available to more families.

Eligibility

  • You must have paid qualified education expenses for yourself, your spouse or your dependent.
  • The student is completing the first four years of post-secondary education at a qualified educational institution.
  • The student is attending school to obtain an undergraduate degree or other recognized education credential.
  • The student is enrolled for at least half-time of one academic period that began in the tax year.
  • The student has no felony drug convictions.

Determining the Amount of Credit

For each student, the amount of the Hope Credit equals the sum of:

  • 100% of the first $2,000 of qualified expenses paid for the eligible student
  • 25% of the next $2,000 of qualified expenses paid for the eligible student

The maximum credit that can be claimed is $2,500 per student per year.

For more information see IRS Publication 970.

 

Lifetime Learning Credit

The Lifetime Learning Credit provides a maximum non-refundable tax credit of $2,000 per year for all students attending an eligible educational institution in your household. The Lifetime Learning Credit may be limited by your income and amount of tax.

For individual taxpayers, the Lifetime Learning Credit phases out if MAGI is between $50,000 and $60,000. For married filing joint, the credit phases out if MAGI is between $100,000 and $120,000. These limits are significantly lower than the American Opportunity Credit.

Eligibility

  • Any student enrolled in one or more courses at an eligible educational institution.
  • There are no requirement to be seeking a degree or to be enrolled at least half-time.
  • The institution can include nondegree programs to acquire or improve job skills.
  • There is no limit on the number of years you can claim the credit.

Determining the Amount of Credit

  • The amount of the Lifetime Learning Credit is 20% of the first $10,000 paid for eligible education expenses for all eligible students.
  • The maximum amount of credit is $2,000 per household.
  • The amount of the credit will be reduced or eliminated if you exceed certain income levels.

 

Requirements to Claim American Opportunity or
Lifetime Learning Credit

  • You paid qualified higher education expenses for an eligible student.
  • The eligible student is you, your spouse or a dependent for whom you are claiming an exemption.
  • The expenses were paid for the current tax year or the first three months of the succeeding tax year.
  • Your filing status is single, head of household, qualifying widow(er) or married filing jointly.
  • You cannot be claimed as a dependent on another person's tax return.
  • You may claim either the American Opportunity Credit or the Lifetime Learning Credit, or the tuition and fees deduction, for each student in any given year.

Qualifying Expenses

  • Expenses are for tuition and related expenses required for enrollment or attendance at an eligible educational institution.
  • An eligible educational institution is a college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program administrated by the Department of Education.
  • Related expenses include student activity fees, expenses for course-related books, supplies, and equipment included in education expenses. These expenses must be paid to the institution as part of enrollment or attendance requirements. (Expenses for books and course-related supplies are treated differently by each credit; see the descriptions above for more information.)
  • The expenses are not paid with a tax-free scholarship, fellowship, grant or through an employer-provided education assistance program. This includes Pell Grants and Veterans' educational assistance.

Non-Qualifying Expenses

  • Room and board
  • Insurance
  • Transportation
  • Medical expenses
  • Expenses related to sports, games, hobbies, and non-credit courses, unless the course is required as part of the degree program

 

American Opportunity vs. Lifetime Learning Credit

American Opportunity Credit   Lifetime Learning Credit
     

Up to $2,500 per eligible student

  Up to $2,000 credit per return

 

   

Available only until the first four years of
post secondary education are completed.

  Available for all years of post secondary education and for courses to acquire or
improve job skills.

 

   

Available only for four years for each eligible student.

  Available for an unlimited number of years.

 

   

Student must be enrolled at least half-time in at least one academic period during the year

  Available for one or more courses.

 

   

Student must not have any felony drug convictions on record

  Felony drug conviction rule doesn't apply.

 

To claim either credit, complete Form 8863 and attach the form to your Form 1040 or Form 1040A.

For more information see IRS Publication 970.

 

 

> Filing Requirements
> Exemptions
> Itemized Deductions
> Federal Withholding
> Standard Deductions
> Tax Credits
> Education Credits
> Refund Cycle Chart

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