There are two Federal tax credits available to help you offset the costs of higher education for yourself or your dependents. These are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
To qualify for either credit, you must pay post-secondary (i.e., after high school) tuition and fees. The credit may be claimed by the parent or the student, but not by both. If the student is claimed as a dependent, the student cannot file for the credit.
For each student, you can choose to claim only one of the credits in a single tax year. If you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the AOTC for your sophomore daughter and the LLC for your senior son.
Here are some key facts the IRS wants you to know about these valuable education credits:
- The American Opportunity Tax Credit:
- The credit can be up to $2,500 per eligible student.
- The full credit is available to eligible single taxpayers who make less than $80,000, or $160,000 for married couples filing a joint return. The credit is completely phased out for AGIs of $90,000 if single and $180,000 if married filing jointly.
- It is available for the first four years of post-secondary education at a college, university or vocational school.
- Forty percent of the credit is refundable, which means that you may be able to receive $1,000 even if you owe no taxes.
- The student must be pursuing an undergraduate degree or other recognized educational credential.
- The student must be enrolled at least half-time for at least one academic period.
- Qualified expenses include tuition and fees, course-related books, supplies and equipment.
- Lifetime Learning Credit:
- The credit can be up to $2,000 per eligible student.
- It is available for all years of post-secondary education and for courses to acquire or improve job skills.
- The maximum credit is limited to the amount of tax due.
- The student does not need to be pursuing a degree or other recognized credential.
- Qualified expenses include tuition and fees, supplies and equipment.
- The full credit is available to eligible single taxpayers who make less than $68,000, or $136,000 for married couples filing a joint return.
Parents or students claiming either credit should receive a Form 1098-T, Tuition Statement, from their educational institution. You should make sure it is complete and correct.
An eligible taxpayer claims the educational tax credit by completing IRS Form 8863, Education Credits. For more information about these credits, see IRS Publication 970, “Tax Benefits for Education.”
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or email@example.com.
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