OVERVIEW
If you or your dependent is a student, you may want to determine whether you are eligible for one of the two educational tax credits that cover common student expenses. Find out more about these tax credits and how you may benefit from them.
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Key Takeaways • Education tax credits cover common student expenses and can reduce your tax bill on a dollar-for-dollar basis if you are eligible. • The American Opportunity Credit provides up to $2,500 in tax credits to cover the tuition, fees and course-related books, supplies and equipment of students in their first four years of college. • The Lifetime Learning Credit covers up to $2,000 of tuition and fees plus any amount for books and supplies you’re required to purchase directly from the school for any year of study, including postgraduate programs. • You can’t claim either the American Opportunity Credit or the Lifetime Learning Credit for yourself if you’re claimed as a dependent on a different taxpayer's tax return. However, the taxpayer who claims you may be eligible to claim the credit on your behalf. |
Introduction
If you or your dependent is a student, you may want to determine whether you are eligible for one of the two educational tax credits that cover common student expenses. These credits reduce your tax bill on a dollar-for-dollar basis. If you are eligible to claim both credits, you should choose the one that provides the greatest tax savings for you.
American Opportunity Credit
The American Opportunity Credit can save you up to $2,500 in tax for the education expenses of each eligible student. To qualify, the student must pursue a degree at a school that is eligible to participate in the federal student aid program. The credit is only available to students in their first four years of attendance, who enroll at least half time for one academic period during the tax year and do not possess a felony drug conviction.
The credit amount includes the costs you incur for tuition, fees and course-related books, supplies and equipment necessary to attend the institution. If the credit amount exceeds the amount of tax you owe, you can receive up to $1,000 of the credit as a refund.
TurboTax Tip: If the American Opportunity Credit amount exceeds the amount of tax you owe, you can receive up to $1,000 of the credit as a refund. Excess funds from the Lifetime Learning Credit aren't refundable.
Lifetime Learning Credit
Lifetime Learning Credits are available to all taxpayers who attend at least one course during the year at an institution eligible to participate in the federal student aid program. It is not necessary that the student pursue a degree or certification to qualify, and it's available for any year of study. The credit covers the cost of tuition and fees plus any amount for books and supplies you are required to purchase directly from the school.
This credit is of particular value to those students attending postgraduate programs. The maximum benefit of the credit is $2,000. However, the lifetime learning credit is nonrefundable if it exceeds your tax bill for the year.
Preparing Form 8863
If you claim either of the tax credits, the IRS requires you to fill out Form 8863 and attach it to your tax return. Form 8863 requires you to calculate the appropriate credit amount based on your eligible school expenses. In order to claim the tax credit for yourself, you cannot be claimed as a dependent on a different taxpayer's tax return. Otherwise, only that taxpayer is eligible to claim the credit on your behalf.
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