How is the amount of an education credit determined?

Answer:

To calculate an education credit, you must factor in:

The education tax credit amount for each eligible student is also subject to a phaseout.

You must use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) to calculate and claim an education credit.
 

Subcategory:

What expenses qualify for an education credit?

Answer:

Expenses that qualify for an education credit (whether the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit) are qualified tuition and related expenses paid by the taxpayer during the taxable year. Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer at an eligible educational institution for courses of instruction. For the AOTC, the expenses must be paid in a program to acquire a postsecondary degree and may include required course materials. For the Lifetime Learning Credit, the expenses must be paid in a program to acquire a postsecondary degree or to acquire or improve job skills.   

For the AOTC provisions, student activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Expenses for books, supplies, and equipment that are required course materials are included in qualified education expenses whether or not the materials are purchased from the educational institution.

For the Lifetime Learning Credit, student activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance by an individual.

Qualified tuition and related expenses don't include the following types of expenses:

  • Expenses related to any course of instruction or education involving sports, games or hobbies, or any noncredit course (unless the course or other education is part of the student's degree program or, in the case of the Lifetime Learning Credit, the student takes the course to acquire or improve job skills),
  • Student activity fees (unless required for enrollment or attendance),
  • Athletic fees (unless required for enrollment or attendance),
  • Costs of room and board,
  • Insurance premiums or medical expenses (including student health fees),
  • Transportation expenses, and
  • Other personal, living, or family expenses.

An eligible educational institution means a college, university, vocational school, or other postsecondary educational institution that's accredited and eligible to participate in the federal financial student aid programs administered by the Department of Education.
 

Subcategory:

Do tuition and related expenses paid to attend a private high school qualify for an education credit?

Answer:

No, expenses paid to attend a private high school don't qualify for an education credit because a high school isn't an eligible educational institution.

In general, an eligible educational institution is an accredited college, university, vocational school, or other postsecondary educational institution. To be eligible, the educational institution must also be eligible to participate in a federal financial student aid program administered by the Department of Education.

 

Subcategory:

If I pay college tuition and fees with a tax-free scholarship, can I claim an education credit on Form 8863 for those payments?

If the amount of my qualified tuition and related expenses is greater than the amount of my scholarship, may I claim the excess expenses on Form 8863?

Answer:

Yes, you may claim the excess expenses by filling out Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). To claim the credit, qualified expenses are reduced by the amount of any tax-free educational assistance.

Don't reduce the qualified expenses by amounts paid with the student's earnings, loans, gifts, inheritances, or personal savings.

Also, don't reduce the amount of qualified expenses by the amount of any scholarship that, by its terms, can’t be applied to qualified tuition and related expenses or any other scholarship otherwise reported as income on the student’s return.

 

Subcategory:

Can I claim an education credit for higher education expenses paid for with the proceeds of a government-subsidized student loan?

Answer:

Yes, higher education expenses paid with the proceeds of a government-subsidized loan may qualify for the credit. Additionally, you claim the credit in the year in which you pay the expenses, not in the year in which you repay the loan.

 

Subcategory:

Who can claim the American opportunity tax credit?

Answer:

You can claim the American opportunity tax credit (AOTC), if:

  • You pay some or all qualified tuition and related expenses for any of the first 4 years of postsecondary education at an eligible educational institution.
  • You paid qualified expenses for an eligible student (defined below).
  • The eligible student is you, your spouse, or a dependent you claim on your tax return.
  • You show the name and taxpayer identification number (TIN) of you, your spouse, and the eligible student on the return.
  • Your modified adjusted gross income is below a certain dollar limitation.
  • You aren't listed as a dependent on another person's tax return (such as your parents').
  • In the case of a married taxpayer, your filing status is married filing jointly.
  • You don't claim the lifetime learning credit for the same student in the same year.
  • In the case of a taxpayer who is a nonresident alien (or whose spouse is a nonresident alien) for any part of the tax year, the nonresident alien elects to be treated as a resident alien for tax purposes. For additional information, refer to Publication 519, U.S. Tax Guide for Aliens.
  • You provide the EIN of the eligible educational institution irrespective of whether or not you receive a Form 1098-T.

The maximum amount of the credit is $2,500, and 40% of the credit is generally refundable (up to $1,000).

An eligible student is a student who:

  • Was enrolled in a program leading to a degree, certificate or other recognized postsecondary educational credential for at least one academic period beginning in the tax year.
  • Carried at least half the normal full-time workload for the course of study.
  • Didn't make an election to claim the AOTC for any 4 earlier tax years.
  • Hasn't completed the first 4 years of postsecondary education before the beginning of the tax year.
  • Doesn't have a federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

Note: You can't claim the AOTC on either an original or an amended return if the student (you, your spouse or your dependent student claimed on the return) didn't have a TIN by the due date of your return (including extensions), even if the student later gets one of those numbers.

 

Subcategory:

What is the lifetime learning credit?

Answer:

The lifetime learning credit is a nonrefundable tax credit with a per-family dollar limit that's available for qualified tuition and related expenses for any course of higher education, whether the student is at the undergraduate or graduate level, and for courses to acquire or improve job skills. There’s no limit on the number of years the lifetime learning credit can be claimed, and the student does not need to be pursuing a program leading to a degree.

You calculate the lifetime learning credit by taking 20% of the first $10,000 of the qualified educational expenses you paid during the taxable year for all individuals. For a taxpayer with high modified adjusted gross income, a phaseout may apply.

Subcategory:

Who can claim the lifetime learning credit?

Answer:

Generally, you can claim the lifetime learning credit if you meet the following requirements:

  • You paid qualified tuition and related expenses for higher education of a student enrolled in one or more courses at an eligible educational institution to acquire or improve job skills.
  • The student for whom you paid the qualified tuition and related expenses is you, your spouse, or a dependent you claim on your tax return.
  • You paid the qualified tuition and related expenses in the tax year for an academic period beginning in that year or in the first 3 months of the following year.

You can't claim the lifetime learning credit if any of the following applies:

  • Your filing status is married filing separately.
  • You're listed as a dependent on another person's tax return (such as your parents').
  • Your modified adjusted gross income is above a specified amount.
  • You (or your spouse) were a nonresident alien for any part of the tax year and as such, didn't elect to be treated as a resident for tax purposes (for additional information, refer to Publication 519, U.S. Tax Guide for Aliens); or
  • You claim another education credit for the same student in the same year.

 

Subcategory:

Is there an education credit for the cost of a high school student taking college classes before graduation from high school?

Answer:

Yes, as long as the high school student qualifies, the American opportunity tax credit (AOTC) is available.

The tuition and related expenses for the college classes taken by the high school student during high school are eligible for AOTC only if, during the same tax year, the student subsequently enrolls at least half-time in a postsecondary education program leading to a degree, certificate or other recognized educational credential for at least one academic period at an eligible educational institution and receives credit from the institution for the college classes taken before graduation from high school. The academic period does not include the time the student also is enrolled in high school. Or, the lifetime learning credit can be taken, subject to certain eligibility requirements, for any qualified tuition or related expenses to furnish the high school student with one or more courses at an eligible educational institution to acquire or improve job skills.

 

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