Taxation

American and Lifetime Educational Tax Credits

The American Opportunity Credit and the Lifetime Learning Credit are tax credits given for education expenses. These credits can help reduce the amount of your income tax. However, the credits do have limits. You may be eligible to take these tax credits for yourself or your dependents.

American Opportunity Credit

The American Opportunity Credit is a tax credit that's available for certain education expenses. It's available for yourself or another eligible student. You can claim the credit if you meet four requirements:

  • You pay qualified expenses for higher education.
  • The expenses are for an eligible student.
  • You, your spouse or a dependent is the eligible student.
  • You didn't claim the Lifetime Learning Credit.

Qualified education expenses are expenses such as tuition and other related costs. The expenses must be needed to attend the school. Examples of expenses that don't qualify include:

  • Room and board
  • Insurance
  • Transportation
  • Medical expenses

The student must be eligible in order for you to claim the credit. Four requirements must be met by the student to be considered eligible:

  • There are no expenses that were used to figure an American Opportunity Credit in any four previous tax years.
  • The first four years of higher education weren't completed before 2010.
  • The student was enrolled in a program that can lead to an educational degree or other credential.
  • The student wasn't convicted of a felony for a controlled substance.

Up to $2,500 can be claimed for each eligible student. The amount is gradually reduced if your modified adjusted gross income (MAGI) exceeds $80,000. The credit completely disappears if your MAGI exceeds $90,000. The income amounts double if you file a joint return.

Lifetime Learning Credit

The Lifetime Learning Credit may be claimed for any tax year that you pay qualified education expenses. You can't claim the credit if you elected to take the American Opportunity Credit. The amount of the credit can be up to $2,000 a year. There's no limit to the number of years you can claim the credit for each student.

The credit amount is gradually reduced if your MAGI exceeds $50,000. The credit completely disappears if your MAGI exceeds $60,000. The income amounts double if you file a joint return.

Students who are enrolled in one or more courses at an eligible school are eligible for the credit. They don't have to be pursuing a degree or other education credential. Qualified expenses include the cost of taking a class to acquire or improve job skills. They don't include expenses for taking a class for enjoyment.

IRS Publication 970 explains the tax benefits for education expenses. Both the American Opportunity Credit and the Lifetime Learning Credit are included. If you run into any problems, Lawyers.com can help you locate a tax lawyer in your area for specific legal advice.

Questions for Your Attorney

  • Is there a limit on the number of times that I can take a Lifetime Learning Credit?
  • How can I find out whether a school is an eligible educational institution?
  • Does the amount of the American Opportunity Credit go up every year?
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