These tax benefits put the money you spend on qualified
educational expenses back in your pocket. (A tax credit is a
dollar-for-dollar reduction of your tax liability.) You have to
choose which benefit to claim because you cannot use the same
expenses to claim more than one benefit.
American Opportunity Credit
This credit is available for expenses incurred by students who
are in their first four years of undergraduate study and attended
college at least half-time for an academic period that began in the
tax year for which you're filing. If you've already claimed this
credit or the former Hope credit, for more than four tax years, you
are no longer eligible.
A parent, spouse or student who is not claimed as a dependent
can take a federal income-tax credit equal to 100% of the first
$2,000 spent on qualified education expenses--tuition, fees and
textbooks--and 25% of the next $2,000, for a total credit of $2,500
for each qualifying student. If the credit more than wipes out your
tax liability for the year, you'll get a refund check from the IRS
for 40% of the remaining amount, up to $1,000, for each qualifying
Married couples filing jointly qualify for the full credit with
a modified adjusted gross income of $160,000 or less, and single
filers qualify with an income of $80,000 or less. The credit phases
out completely at $180,000 for married couples and $90,000 for
Lifetime Learning Credit
With this credit, you can claim 20% of your out-of-pocket costs
for tuition, fees and books, up to $10,000, for a total of $2,000.
Unlike the American Opportunity credit, the Lifetime Learning
credit is not limited to undergraduate educational expenses, nor
does the credit apply only to students attending at least
half-time. You can claim the credit for yourself, your spouse or
your dependent up to $2,000 per family each year.
You qualify for the benefit if your modified adjusted gross
income is no higher than $128,000 for married couples filing
jointly or $64,000 for single filers. Couples get the full credit
at $108,000; singles at $54,000.
For more about both of these tax credits and other education
IRS Publication 970