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Do You Qualify for One of The Two Educational Tax Credits?

If you, your spouse, or your children attended college last year, the money you spent on tuition, fees, and even books and course material, can count towards one of two educational tax credits.

This page:

  • Describes the two education-related tax credits

  • Lists criteria for the American Opportunity (Hope) Tax Credit and Lifetime Learning Credit.

  • Lists criteria for the American Opportunity (Hope) Tax Credit and Lifetime Learning Credit.

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What Are The Two Educational Tax Credits?

Both credits described here can benefit taxpayers who paid some sort of tuition at a post-secondary learning institution last year:

  • The American Opportunity Tax Credit, (formerly known as the "Hope Tax Credit"), is designed specifically to help meet the costs of the first four years of college, and

  • The Lifetime Learning credit which allows all students, along with graduates and professionals, to claim credit for tuition paid at a college and/or for job-related classes.

These two educational tax credits can be somewhat confusing, and there are certain loopholes and exclusions you should know about before claiming them on your 2017, whether you are a student, or the parent of a student.

In fact, e-filing with TurboTax is the easiest way to ensure that you claim the maximum amount allowed to you for these credits, as well as all other tax credits. It's also the best way to make sure that no mistakes are made on your tax return.

The KEY Differences Between The Two Tax Credits

The American Opportunity Tax Credit and the Lifetime Learning Credit offer similar financial incentives for attending a post-secondary institution, however, there are a couple of key differences that students and parents need to be aware of, before deciding on which credit is more appropriate for their situation.

See the following table for a comparison of benefits offered by each credit. If you qualify for both, the American Opportunity Tax Credit (AOTC) is likely to exceed the amount you could claim under the Lifetime Learning Credit, but continue reading to make sure you are making the most beneficial decision:

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 filling jointly;
$90,000 if single, head of household, or qualifying widow(er)

$127,000 if married filling jointly;
$63,000 if single, head of household, or qualifying widow(er)

Refundable or nonrefundable

40% of credit may be refundable

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

Available for an unlimited number of years

Type of degree required

Student must be pursuing an undergraduate 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 tax year

Available for one or more courses

Felony drug conviction

No felony drug convictions on student's records

Felony drug convictions are permitted

Qualified expenses

Tuition and required enrollment fees. Course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify.

Tuition and required enrollment fees, including amounts required to be paid to the institution for course-related books, supplies, and equipment.

Payments that qualify

Payments made in 2017 for academic periods beginning in 2017 and in the first 3 months of 2015

Source: TaxSlayer

Note that qualification for both credits is contingent upon you not exceeding certain income requirements (this is true of all tax credits).

These requirements are based on your MAGI, or Modified Adjusted Gross Income, which is similar to the AGI, but with several deductions that (if taken) must be added back in before re-calculating the MAGI.

If your Modified Adjusted Gross Income is above the highest levels allowed to claim these credits, you may still be able to save by deducting a portion of the tuition and fees that you incurred in 2017.

A few more things you need to be aware of:

  • You cannot claim these credits if you are married and filing separately

  • You can claim one of the credits for one student, and one for the other, but you cannot claim both educational tax credits for the same student.

  • The Lifetime Learning Credit annual limit applies to an entire tax return, rather than individual students. This means its impact is severely diluted for families with more than one student in school at the same time.

To summarize: these two educational credits are closely related, and often complement each other. Because the American Opportunity Tax Credit applies only for the first four years of a student's education, parents (or students) often claim the Lifetime Learning credit after their eligibility for the AOTC has expired.

On the next page we'll explain how to claim the education tax credits.

Related IRS Publications

You can get more information about educational tax credits directly from the IRS, in the form of IRS Publication 970 (it's lots of fun.)

If you file a paper tax return, you will also need to attach IRS Form 8863 with your return. (If you e-file, this will be done for you automatically.)

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