American Opportunity Tax Credit

Next year, taxpayers who have to write checks for higher education can see tax savings when filing their tax returns. If you, your spouse, or your dependents are taking postsecondary coursework, there is a strong chance a tax benefit may be in your future.College Tuition Costs
The credits available are the American Opportunity Tax Credit and the Lifetime Learning Credit.
The major points of the American Opportunity Tax Credit include:

  • A maximum benefit of up to $2,500 per eligible student.
  • Only applies for the first four years at an eligible college or vocational school.
  • It is intended for students pursuing a degree or other recognized educational credential.
  • It is partially refundable. You can receive 40% of the credit’s value up to $1,000 back.

The Lifetime Learning Credit includes:

  • A maximum benefit of up to $2,000 per tax return per year, no matter how many students qualify.
  • It is available for all years of postsecondary education and courses to acquire or improve job skills.
  • It is available for an unlimited number of tax years.
  • It is not refundable.

Qualified expenses for the American Opportunity Tax Credit include tuition, required enrollment fees, and course materials needed for the course of study. Qualified expenses for the Lifetime Learning Credit only cover tuition and fees for enrollment or attendance. Qualified expenses can be paid by you, your spouse, the student, or a third party such as a relative or friend.
What is the story on deductions?
Before 2017, the IRS offered a tuition and fees tax deduction. The deduction has expired, but you can claim it for a relevant year by filing an amended return. You can deduct up to $4,000 from your gross income for money spent on eligible education expenses, including tuition, fees, books, supplies, and other purchases your school requires. Personal expenses like transportation and room and board do not qualify.
The Tuition and Fees Deduction cannot be claimed in the same tax year that the American Opportunity Tax Credit or the Lifetime Learning Credit is claimed for the same student. While the Tuition and Fees Deduction reduces adjusted gross income, the American Opportunity Tax Credit provides a greater tax benefit for most individuals. As the IRS notes, “You can claim all three benefits on the same return but not for the same student or same qualified expenses.”
This is a summary of these provisions. Be sure to consult a tax professional to find out the best way to maximize these benefits for your situation.

Need Guidance and Help?
If you need advice, give us a call and we will be happy to discuss your situation.