Updated: Dec 1, 2019
There are two education credits available to taxpayers who pay expenses for higher education or post-secondary education. The American opportunity credit* is partially refundable and partially nonrefundable. The lifetime learning credit* is nonrefundable.
For tax years beginning after June 29, 2015, the law requires a taxpayer (or a dependent) to have received a Form 1098-T from an eligible educational institution to claim the tuition and fees deduction, American opportunity credit, or the lifetime learning credit.
*American Opportunity Credit
A new education tax credit for tax years 2009 and 2010 that is a modification of the Hope credit. The credit was extended to apply for tax years 2011 and 2012 by the Tax Relief and Job Creation Act of 2010. The new credit makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
*Lifetime Learning Credit
One of two tax credits available to offset the costs of higher education by reducing the amount of income tax. The Lifetime Learning credit is a nonrefundable credit of up to $2,000 for qualified education expenses** for students enrolled in eligible educational institutions. It is available to students for all years of postsecondary education and for courses to acquire or improve job skills.
** The definition of qualified education expenses will vary depending upon the context – education credits (Credits that reduce the amount of tax due and are based on qualified education expenses that the taxpayer paid during the tax year), Coverdell accounts, education savings bonds, early IRA distributions, qualified tuition programs, scholarships and fellowships, student loans, etc.
Who Can Claim the Education Credits?
Generally, the taxpayer can claim the American Opportunity Credit or the Lifetime Learning Credit if all three of the following requirements are met:
The taxpayer pays qualified education expenses**of higher education;
The taxpayer pays the education expenses for an eligible student; and
The eligible student is the taxpayer, his spouse, or a dependent for whom he claimed as a dependent on his tax return.
No Double Benefit Allowed
For each student, the taxpayer can choose for any year, only one of the credits. The taxpayer cannot:
Deduct higher education expenses on his income tax return and claim an education credit based on those same expenses
Claim an education credit in the same year the taxpayer is claiming a tuition and fees deduction for the same student
Claim more than 1 education credit based on the same qualified education expenses
Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP)
Claim an educational credit based on qualified educational expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided education assistance
Qualified Education Expenses
Qualified education expenses include tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.
For American Opportunity Credit – Related qualified expenses include course-related books, supplies, and equipment, whether purchased from the educational institution. Student activity fees are included only if the fees must be paid to the institution as a condition of enrollment or attendance.
For Lifetime Learning Credit – Related qualified expenses only include expenses paid for books, supplies, and equipment that are required to be paid to the institution as a condition of enrollment or attendance.
Qualified education expenses do not include expenses paid for insurance, medical expenses, room and board, transportation, and similar personal, living, or family expenses.