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General Instructions

Section references are to the Internal Revenue Code unless otherwise noted.

Future Developments

For the latest information about developments related to Form 8863 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form8863.

What's New

Form 1098-T requirement.   For tax years beginning after June 29, 2015, generally tax year 2016 returns for most taxpayers, the law requires a taxpayer (or a dependent) to have received a Form 1098-T from an eligible educational institution in order to claim the tuition and fees deduction, American opportunity credit, or the lifetime learning credit.

  However, for tax year 2016, a taxpayer may claim one of these education benefits if the student does not receive a Form 1098-T because the student’s educational institution is not required to send a Form 1098-T to the student under existing rules (for example, if the student is a nonresident alien, has qualified education expenses paid entirely with scholarships, or has qualified education expenses paid under a formal billing arrangement). If a student’s educational institution is not required to provide a Form 1098-T to the student, a taxpayer may claim one of these education benefits without a Form 1098-T if the taxpayer otherwise qualifies, can demonstrate that the taxpayer (or a dependent) was enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and related expenses.

Ban on claiming the American opportunity credit.   If you claim the American opportunity credit even though you're not eligible, you may be banned from claiming the credit for up to 10 years. See the Caution statement under American Opportunity Credit, later.

Taxpayer identification number needed by due date of return.   If you don’t have a taxpayer identification number (TIN) by the due date of your 2016 return (including extensions), you can’t claim the American opportunity credit on either your original or an amended 2016 return, even if you later get a TIN. Also, the American opportunity credit isn’t allowed on either your original or an amended 2016 return for a student who doesn’t have a TIN by the due date of your return (including extensions), even if that student later gets a TIN.

Limits on modified adjusted gross income (MAGI).   The lifetime learning credit MAGI limit increases to $131,000 if you are filing married filing jointly ($65,000 if you are filing single, head of household, or qualifying widow(er)). The American opportunity credit MAGI limits remain unchanged. See Table 1 and the instructions for line 3 or line 14.

Purpose of Form

Use Form 8863 to figure and claim your education credits, which are based on adjusted qualified education expenses paid to an eligible educational institution (postsecondary). For 2016, there are two education credits.

  • The American opportunity credit, part of which may be refundable.

  • The lifetime learning credit, which is nonrefundable.

A refundable credit can give you a refund even if you owe no tax and are not otherwise required to file a tax return. 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, earlier.

Table 1.Comparison of Education Credits for 2016

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)
$131,000 if married filing jointly;  
$65,000 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 if the student had not completed the first 4 years of postsecondary education before 2016 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 tax years
Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to 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 2016 (or the first 3 months of 2017 if the qualified expenses were paid in 2016) Available for one or more courses
Felony drug conviction As of the end of 2016, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible
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 2016 for academic periods beginning in 2016 or beginning in the first 3 months of 2017
TIN needed by filing due date Filers and students must have a TIN by the due date of their 2016 return (including extensions)  

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. For 2016, the credits are based on the amount of adjusted qualified education expenses paid for the student in 2016 for academic periods beginning in 2016 or beginning in the first 3 months of 2017.

Academic period.   An academic period is any quarter, semester, trimester, or any other period of study as reasonably determined by an eligible educational institution. If an eligible educational institution uses credit hours or clock hours and does not have academic terms, each payment period may be treated as an academic period. For details, see Academic period in chapters 2 and 3 of Pub. 970.

Who can claim a dependent's expenses.   If a student is claimed as a dependent on another person's tax return, all qualified education expenses of the student are treated as having been paid by that person. Therefore, only that person can claim an education credit for the student. If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit.

Expenses paid by a third party.   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 by the third party. 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 claim an education credit on a 2016 tax return 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 2016 and did not elect to be treated as a resident alien for tax purposes.
4. Your MAGI is the following.
  a. For the 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) with dependent child.
  b. For the lifetime learning credit: $131,000 or more if married filing jointly, or $65,000 or more if single, head of household, or qualifying widow(er) with dependent child.

Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. However, if you are filing Form 2555, Foreign Earned Income; Form 2555-EZ, Foreign Earned Income Exclusion; or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa; or are excluding income from Puerto Rico, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. For details, see Pub. 970.

American Opportunity Credit

If you claim this credit even though you're not eligible and it's determined that your error is due to reckless or intentional disregard of the rules, but not fraud, you won't be allowed to claim the credit for 2 years. If it's determined that your error is due to fraud, you won't be allowed to claim the credit for 10 years.

You may be able to claim a credit of up to $2,500 for adjusted qualified education expenses (defined later) paid for each student who qualifies for the American opportunity credit. This credit equals 100% of the first $2,000 and 25% of the next $2,000 of adjusted qualified education expenses paid for each eligible student. The amount of your credit for 2016 is gradually reduced (phased out) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

If you can claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or for the lifetime learning credit. If you have this choice, the American opportunity credit will always be greater than the lifetime learning credit.

Student qualifications.   Generally, you can claim the American opportunity credit for a student on a 2016 tax return only if all of the following four requirements are met.
  1. As of the beginning of 2016, the student had not completed the first 4 years of postsecondary education (generally, the freshman through senior years of college), as determined by the eligible educational institution. For this purpose, do not include academic credit awarded solely because of the student's performance on proficiency examinations.

  2. Neither the American opportunity credit nor the Hope scholarship credit has been claimed (by you or anyone else) for this student for any 4 tax years before 2016. If the American opportunity credit (and Hope scholarship credit) has been claimed for this student for any 3 or fewer tax years before 2016, this requirement is met.

    Example 1.

    Sharon was eligible for the American opportunity credit for 2010, 2011, 2012, and 2015. Her parents claimed the American opportunity credit for Sharon on their 2010, 2011, and 2012 tax returns. Sharon claimed the American opportunity credit on her 2015 tax return. The American opportunity credit has been claimed for Sharon for 4 tax years before 2016. Therefore, the American opportunity credit cannot be claimed for Sharon for 2016. If Sharon were to file Form 8863 for 2016, she would check “Yes” for Part III, line 23, and would be eligible to claim only the lifetime learning credit.

    Example 2.

    Wilbert was eligible for the American opportunity credit for 2012, 2013, 2014, and 2016. His parents claimed the American opportunity credit for Wilbert on their tax returns for 2012, 2013, and 2014. No one claimed an American opportunity credit or Hope scholarship credit for Wilbert for any other tax year. The American opportunity credit and Hope scholarship credit have been claimed for Wilbert for only 3 tax years before 2016. Therefore, Wilbert meets the second requirement to be eligible for the American opportunity credit. If Wilbert were to file Form 8863 for 2016, he would check “No” for Part III, line 23. If Wilbert meets all of the other requirements, he is eligible for the American opportunity credit.

  3. For at least one academic period beginning or treated as beginning (see below) in 2016, the student both:

    1. Was enrolled in a program that leads to a degree, certificate, or other recognized educational credential; and

    2. Carried at least one-half the normal full-time workload for his or her course of study.

      The standard for what is half of the normal full-time work load is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the U.S. Department of Education under the Higher Education Act of 1965.

      For 2016, treat an academic period beginning in the first 3 months of 2017 as if it began in 2016 if qualified education expenses for the student were paid in 2016 for that academic period. See Prepaid Expenses, later.

      Example. Glenda enrolls on a full-time basis in a degree program for the 2016 Spring semester, which begins in January 2016. Glenda pays her tuition for the 2016 Spring semester in December 2015. Because the tuition Glenda paid in 2015 relates to an academic period that begins in the first 3 months of 2016, her eligibility to claim an American opportunity credit in 2015 is determined as if the 2016 Spring semester began in 2015. Therefore, Glenda satisfies this third requirement.

  4. As of the end of 2016, the student had not been convicted of a federal or state felony for possessing or distributing a controlled substance.

  5. Filers and students must have a TIN by the due date of their 2016 return (including extensions).

If the requirements above are not met for any student, you cannot claim the American opportunity credit for that student. You may be able to claim the lifetime learning credit for part or all of that student's qualified education expenses instead.

Lifetime Learning Credit

The lifetime learning credit equals 20% of adjusted qualified education expenses (defined later), up to a maximum of $10,000 of adjusted qualified education expenses per return. Therefore, the maximum lifetime learning credit you can claim on your return for the year is $2,000, regardless of the number of students for whom you paid qualified education expenses. The amount of your credit for 2016 is gradually reduced (phased out) if your MAGI is between $55,000 and $65,000 ($111,000 and $131,000 if you file a joint return). You cannot claim a credit if your MAGI is $65,000 or more ($131,000 or more if you file a joint return).

You cannot claim the lifetime learning credit for any student if you claim the American opportunity credit for that student for the same tax year.

Qualified Education Expenses

Generally, qualified education expenses are amounts paid in 2016 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.

For course-related books, supplies, and equipment, only certain expenses 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 amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance.

Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. However, fees for personal expenses (described below) are never qualified education expenses.

Qualified education expenses do not include amounts paid for the following.

  • Personal expenses. This means room and board, insurance, medical expenses (including student health fees), transportation, and 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.

You may receive Form 1098-T, Tuition Statement, from the institution reporting either payments received in 2016 (box 1) or amounts billed in 2016 (box 2). However, the amount in box 1 or 2 of Form 1098-T may be different from the amount you paid (or are treated as having paid). In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2016 (reduced, as necessary, as described in Adjusted Qualified Education Expenses, later). See chapters 2 and 3 of Pub. 970 for more information on Form 1098-T.

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. 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.

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 6 and 7, for more information.

Prepaid Expenses

Qualified education expenses paid in 2016 for an academic period that begins in the first 3 months of 2017 can be used in figuring an education credit for 2016 only. See Academic period, earlier. For example, if you pay $2,000 in December 2016 for qualified tuition for the 2017 winter quarter that begins in January 2017, you can use that $2,000 in figuring an education credit for 2016 only (if you meet all the other requirements).

You cannot use any amount you paid in 2015 or 2017 to figure the qualified education expenses you use to figure your 2016 education credit(s).

Adjusted Qualified Education Expenses

For each student, reduce the qualified education expenses paid in 2016 by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.

Tax-free educational assistance.    For tax-free educational assistance received in 2016, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period, earlier.

  Tax-free educational assistance includes:
  1. The tax-free part of any scholarship or fellowship grant (including Pell grants);

  2. The tax-free part of any employer-provided educational assistance;

  3. Veterans' educational assistance; and

  4. Any other educational assistance that is excludable from gross income (tax free), other than as a gift, bequest, devise, or inheritance.

  
You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received.

  Generally, any scholarship or fellowship grant is treated as tax-free educational assistance. However, a scholarship or fellowship grant is not treated as tax-free educational assistance to the extent the student includes it in gross income (the student may or may not be required to file a tax return) for the year the scholarship or fellowship grant is received and either:
  • The scholarship or fellowship grant (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses, or

  • The scholarship or fellowship grant (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses.

  
A student cannot choose to include in income a scholarship or fellowship grant provided by an Indian tribal government that is excluded from income under the Tribal General Welfare Exclusion Act of 2014 or benefits provided by an educational program described in section 5.02(2)(b)(ii) of Rev. Proc. 2014-35, available at www.irs.gov/irb/2014-26_IRB/ar10.html.

Coordination with Pell grants and other scholarships or fellowship grants.   You may be able to increase an education credit and reduce your total tax or increase your tax refund if the student (you, your spouse, or your dependent) chooses to include all or part of certain scholarships or fellowship grants in income. The scholarship or fellowship grant must be one that may qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub. 970. Also, the scholarship or fellowship grant must be one that may (by its terms) be used for expenses other than qualified education expenses (such as room and board).

  The fact that the educational institution applies the scholarship or fellowship grant to qualified education expenses (such as tuition and related fees) does not prevent the student from choosing to apply certain scholarships or fellowship grants to other expenses (such as room and board). By choosing to do so, the student will include the part applied to other expenses (such as room and board) in gross income and may be required to file a tax return. However, this allows payments made in cash, by check, by credit or debit card, or with borrowed funds such as a student loan, to be applied to qualified education expenses. These payments, unlike certain scholarships or fellowship grants, will not reduce the qualified education expenses available to figure an education credit. The result is generally a larger education credit that reduces your total tax or increases your tax refund.

Example 1.

Last year, your child graduated from high school and enrolled in college for the fall semester. You and your child meet all other requirements to claim the American opportunity credit, and you need to determine adjusted qualified education expenses to figure the credit.

Your child has $5,000 of qualified education expenses and $4,000 of room and board. Your child received a $5,000 Pell grant and took out a $2,750 student loan to pay these expenses. You paid the remaining $1,250. The Pell grant by its terms may be used for any of these expenses.

If you and your child choose to apply the Pell grant to the qualified education expenses, it will qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub. 970. Your child will not include any part of the Pell grant in gross income. After reducing qualified education expenses by the tax-free scholarship, you will have $0 ($5,000 − $5,000) of adjusted qualified education expenses available to figure your credit. Your credit will be $0.

Example 2.

The facts are the same as in Example 1. If, unlike in Example 1, you and your child choose to apply only $1,000 of the Pell grant to the qualified education expenses and to apply the remaining $4,000 to room and board, only $1,000 will qualify as a tax-free scholarship.

Your child will include the $4,000 applied to room and board in gross income, and it will be treated as earned income for purposes of determining whether your child is required to file a tax return. If the $4,000 is your child’s only income, your child will not be required to file a tax return.

After reducing qualified education expenses by the tax-free scholarship, you will have $4,000 ($5,000 − $1,000) of adjusted qualified education expenses available to figure your credit. Your refundable American opportunity credit will be $1,000. Your nonrefundable credit may be as much as $1,500, but depends on your tax liability.

If you are not otherwise required to file a tax return, you should file to get a refund of your $1,000 refundable credit, but your tax liability and nonrefundable credit will be $0.

Note.   The result may be different if your child has other income or if you are the student. If you are the student and you claim the earned income credit, choosing not to apply a Pell grant to qualified education expenses may decrease your earned income credit at certain income levels by raising your adjusted gross income. However, you generally need at least $2,000 of adjusted qualified education expenses to receive the maximum benefit of claiming both credits. For details and more examples, see Pub. 970.

  
Unlike a scholarship or fellowship grant, a tax-free distribution from a Coverdell ESA or qualified tuition program (section 529 plan) can be applied to either qualified education expenses or certain other expenses (such as room and board) without creating a tax liability for the student. An education credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA or qualified tuition program, as long as the same expenses are not used for both benefits. For details, see Pub. 970, chapter 7 or 8.

Tax-free educational assistance treated as a refund.   Some tax-free educational assistance received after 2016 may be treated as a refund of qualified education expenses paid in 2016. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2016 for qualified education expenses paid on behalf of a student in 2016 (or attributable to enrollment at an eligible educational institution during 2016).

  If this tax-free educational assistance is received after 2016, but before you file your 2016 income tax return, see Refunds received after 2016, but before your income tax return is filed, later. If this tax-free educational assistance is received after 2016 and after you file your 2016 income tax return, see Refunds received after 2016 and after your income tax return is filed, later.

Refunds.   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Some tax-free educational assistance received after 2015 may be treated as a refund. See Tax-free educational assistance treated as a refund, earlier.

Refunds received in 2016.

For each student, figure the adjusted qualified education expenses for 2016 by adding all the qualified education expenses paid in 2016 and subtracting any refunds of those expenses received from the eligible educational institution during 2016.

Refunds received after 2016, but before your income tax return is filed.

If anyone receives a refund after 2016 of qualified education expenses paid on behalf of a student in 2015 and the refund is received before you file your 2016 income tax return, reduce the amount of qualified education expenses for 2016 by the amount of the refund.

Refunds received after 2016 and after your income tax return is filed.

If anyone receives a refund after 2016 of qualified education expenses paid on behalf of a student in 2016 and the refund is received after you file your 2016 income tax return, you may need to repay some or all of the credit that you claimed. See Credit recapture next.

Credit recapture.   If any tax-free educational assistance for the qualified education expenses paid in 2016, or any refund of your qualified education expenses paid in 2016, is received after you file your 2016 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2016 by reducing the expenses by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2016 and figure the amount by which your 2016 tax liability would have increased if you had claimed the refigured 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 2016 for your child's Spring semester beginning in January 2017. You filed your 2016 tax return on February 2, 2017, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x 0.20). You claimed no other tax credits. After you filed your return, your child withdrew from two courses and you received a refund of $1,400. You must refigure your 2016 lifetime learning credit using $6,600 ($8,000 qualified education 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 2017 income tax return. See the instructions for your 2017 income tax return to determine where to include this tax.

If you paid qualified education expenses in both 2016 and 2017 for an academic period that begins in the first 3 months of 2017 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce the qualified education expenses you paid in 2017 instead of reducing the qualified education expenses you paid in 2016.

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.

An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program administered by the Department of Education.

The educational institution should be able to tell you if it is an eligible educational institution.

Additional Information

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


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