Instructions for Form 8863 (2011)

What's New

Hope credit. The Hope credit is not available for 2011.

Future Developments. The IRS has created a page on IRS.gov for information about Form 8863 and its instructions, at www.irs.gov/form8863. Information about any future developments affecting Form 8863 (such as legislation enacted after we release it) will be posted on that page.

Purpose of Form

Use Form 8863 to figure and claim your education credits, which are based on qualified education expenses paid to an eligible postsecondary educational institution. For 2011, there are two education credits.

The American opportunity credit, part of which may be refundable. Complete Parts I, III, and IV.
The lifetime learning credit, which is nonrefundable. Complete Parts II and IV.

A refundable credit can give you a refund for any part of the credit that is more than your total tax. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.

Both of these credits have different rules that can affect your eligibility to claim a specific credit. These differences are shown in Table 1 below.

You may be able to take the tuition and fees deduction for you, your spouse, or a dependent, instead of an education credit. Figure your tax both ways and choose the one that gives you the lower tax. See Form 8917, Tuition and Fees Deduction, and chapter 6 of Pub. 970, Tax Benefits for Education, for more information about the tuition and fees deduction.

Table 1.Comparison of Education Credits

Caution. You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student.

	American Opportunity Credit	Lifetime Learning Credit
Maximum credit	Up to $2,500 credit per eligible student	Up to $2,000 credit per return
Limit on modified adjusted gross income (MAGI)	$180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)	$122,000 if married filing jointly; $61,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable	40% of credit may be refundable; the rest is nonrefundable	Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
Number of years of postsecondary education	Available ONLY for the first 4 years of postsecondary education	Available for all years of postsecondary education and for courses to acquire or improve job skills
Number of tax years credit available	Available ONLY for 4 tax years per eligible student (including any year(s) Hope credit was claimed)	Available for an unlimited number of years
Type of degree required	Student must be pursuing a degree or other recognized education credential	Student does not need to be pursuing a degree or other recognized education credential
Number of courses	Student must be enrolled at least half time for at least one academic period beginning during the year	Available for one or more courses
Felony drug conviction	As of the end of 2011, the student had not been convicted of a felony for possessing or distributing a controlled substance	Felony drug convictions are permitted
Qualified expenses	Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance	Tuition and required enrollment fees (including amounts required to be paid to the institution for course-related books, supplies, and equipment)
Payments for academic periods	Payments made in 2011 for academic periods beginning in 2011 or beginning in the first 3 months of 2012

Who Can Claim an Education Credit

You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student in 2011 for academic periods beginning in 2011 and in the first 3 months of 2012.

Qualified education expenses must be reduced by any expenses paid directly or indirectly using tax-free educational assistance. See Tax-Free Educational Assistance and Refunds of Qualified Education Expenses, later.

Who can claim a dependent's expenses. If a student is claimed as a dependent on another person's tax return, only the person who claims the student as a dependent can claim a credit for the student's qualified education expenses. If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit.

Generally, qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Therefore, you are treated as having paid expenses that were paid from your dependent student's earnings, gifts, inheritances, savings, etc. For more information and an example, see Who Can Claim a Dependent's Expenses in Pub. 970, chapter 2 or 3.

Who cannot claim a credit. You cannot take an education credit if any of the following apply.

1.	You are claimed as a dependent on another person's tax return, such as your parent's return.
2.	Your filing status is married filing separately.
3.	You (or your spouse) were a nonresident alien for any part of 2011 and did not elect to be treated as a resident alien for tax purposes.
4.	Your modified adjusted gross income (MAGI) is one of the following.
	a.	American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er).
	b.	Lifetime learning credit: $122,000 or more if married filing jointly, or $61,000 or more if single, head of household, or qualifying widow(er).

There are a number of factors, such as your filing status, your MAGI, and whether you are subject to the alternative minimum tax, that will affect the amount of any education credit you are eligible to claim. When you figure your taxes, you may want to compare the different education credits in order to choose the method(s) that gives you the lowest tax liability. If you qualify, you may find that a combination of credits and other education benefits gives you the lowest tax. See Pub. 970 for information on other benefits.

Qualified Education Expenses

Generally, qualified education expenses are amounts paid in 2011 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds.

Only certain expenses for course-related books, supplies, and equipment qualify.

American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
Lifetime learning credit: Qualified education expenses include only amounts for books, supplies, and equipment required to be paid to the institution as a condition of enrollment or attendance.

Qualified education expenses for either credit do not include amounts paid for:

Room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.
Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills.
Nonacademic fees, such as student activity fees, athletic fees, insurance expenses, or other expenses unrelated to the academic course of instruction.

You should receive Form 1098-T, Tuition Statement, from the college or university reporting either payments received in 2011 (box 1) or amounts billed in 2011 (box 2). However, the amount in box 1 or 2 of Form 1098-T may be different from what you actually paid. On Form 8863, lines 1 and 3, enter only the amounts you paid in 2011 for qualified expenses (reduced, if necessary, by tax-free education assistance and refunds, as described later). See chapters 2 and 3 of Pub. 970 for more information on Form 1098-T.

If you or the student takes a deduction for higher education expenses, such as on Schedule A or Schedule C (Form 1040), you cannot use those same expenses in your qualified education expenses when figuring your education credits.

Any qualified expenses used to figure the education credits cannot be taken into account in determining the amount of a distribution from a Coverdell ESA or a qualified tuition program (section 529 plan) that is excluded from gross income. See Pub. 970, chapters 7 and 8, for more information.

Prepaid Expenses

Qualified education expenses paid in 2011 for an academic period that begins in the first 3 months of 2012 can be used only in figuring your 2011 education credits. For example, if you pay $2,000 in December 2011 for qualified tuition for the 2012 winter quarter that begins in January 2012, you can use that $2,000 in figuring your 2011 education credits (if you meet all the other requirements).

You cannot use any amount paid in 2010 or 2012 to figure your 2011 education credit(s).

Tax-Free Educational Assistance and Refunds of Qualified Education Expenses

Tax-free educational assistance includes a tax-free scholarship or Pell grant or tax-free employer-provided educational assistance. See chapter 1 of Pub. 970 for specific information.

Adjusted qualified education expenses. For both credits, you must reduce the total of your qualified education expenses by any tax-free educational assistance for the qualified education expenses paid in 2011 and by any refunds of your qualified education expenses paid in 2011 if the refund or tax-free assistance is received in 2011 or in 2012 before you file your 2011 tax return. This is the amount of your adjusted qualified education expenses. Use the Qualified Education Expenses Worksheet for Part I, Line 1, Column (c) for the American opportunity credit. Use the Qualified Education Expenses Worksheet for Part II, Line 3, Column (c) for the lifetime learning credit.

Credit recapture. If any tax-free educational assistance for the qualified education expenses paid in 2011 or any refund of your qualified education expenses paid in 2011 is received after you file your return for the year in which the expenses were paid, you must recapture (repay) any excess credit. You do this by figuring the amount by which your tax liability would have increased if the refund or tax-free assistance had been received in the year for which you claimed the education credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.

Example.

You paid $8,000 tuition and fees in December 2011 for your child's spring semester beginning in January 2012. You filed your 2011 tax return on February 2, 2012, and claimed a lifetime learning credit of $1,600 ($8,000 qualified expenses paid x .20). You claimed no other tax credits. After you filed your return, your child dropped two courses and you received a refund of $1,400.

You must refigure your 2011 lifetime learning credit using $6,600 ($8,000 qualified expenses - $1,400 refund). The refigured credit is $1,320 and your tax liability increased by $280. You must include the difference of $280 ($1,600 credit originally claimed - $1,320 refigured credit) as additional tax on your 2012 income tax return. See the instructions for your 2012 income tax return to determine where to include this tax.

Eligible Educational Institution

An eligible educational institution is generally any accredited public, nonprofit, or proprietary (private) college, university, vocational school, or other postsecondary institution. Also, the institution must be eligible to participate in a student aid program administered by the Department of Education. Virtually all accredited postsecondary institutions meet this definition.

Additional Information

See Pub. 970, chapters 2 and 3, for more information about these credits.

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