Tax Credits For Higher Education

If you have post-secondary school education expenses, you might be eligible for two credits.

American Opportunity Credit

You might be able to claim an American Opportunity Credit of up to $2,500 for 2023. You can apply this to qualified education expenses paid for each eligible student. The credit is calculated in two parts and is equal to:

• 100% of the first $2,000 of eligible expenses
• 25% of the next $2,000 in eligible expenses

This is a per-student limit. You can only claim it for the first four years of higher education. This credit is 40% refundable for most taxpayers.

Lifetime Learning Credit

You might be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses. You can claim this credit only once per return. However, there’s no limit on the number of years you can claim the credit.

For the Lifetime Learning Credit, you can claim a maximum of $10,000 in total expenses for all eligible students. The credit is equal to 20% of the expenses. So, the maximum credit allowed is $2,000 (20% of $10,000). If you have fewer expenses, your credit will be lower.

Credit eligibility

To qualify for the American Opportunity Credit or the Lifetime Learning Credit, you must meet all of these requirements:

• Eligible educational institution
• Eligible expenses
• Eligible student

Eligible educational institution

An eligible institution for both credits:

• Is a post-secondary institution
• Can participate in a student financial aid program from the U.S. Department of Education

Institutions include:

• Colleges
• Universities
• Post-secondary vocational schools
• Other post-secondary educational institutions

Eligible expenses

These expenses for the Lifetime Learning Credit include:

• Tuition and fees required for enrollment or attendance in the course or program. This applies to courses or programs you take:
  • During the year
  • Within three months after the close of the year
• Course-related expenses required for enrollment and attendance at the school. These are expenses for:
  • Books
  • Supplies
  • Equipment

Expenses for the American Opportunity Credit include tuition and fees required for the course or program. This is for courses or programs you take:

• During the year
• Within three months after the close of the year
• Books, supplies, and equipment needed for a course of study. It doesn’t matter if you bought these materials from the school as a condition of enrollment or attendance.

Ineligible expenses for the education credits include:

• Personal expenses for:
  • Housing
  • Meals
  • Incidentals
  • Transportation
  • Medical expenses
  • Insurance
• These activities, unless required as part of the degree program:
  • Hobbies
  • Games
  • Sports
  • Noncredit courses

Eligible students

Each credit has a different definition of an eligible student. Eligible students for the American Opportunity Credit must meet these requirements:

• Carry at least half the normal full-time workload for the student’s course of study in at least one academic period during the year
• Be enrolled in a course of study that leads to a:
  • Degree
  • Certificate
  • Other recognized educational credential
• Not have expenses used for an American Opportunity Credit in any four earlier tax years. This includes a tax year when you claimed the Hope Credit for the same student.
• Not have completed the first four years of higher education as determined by the institution
• Not have been convicted of a felony offense for possessing or distributing a controlled substance
• Not have an adjusted gross income (AGI) that’s more than the phase-out limits — $80,000 if filing as single or $160,000 if married filing jointly. The credit is completely phased out for AGIs of $90,000 if single and $180,000 if married filing jointly

Eligibility for the Lifetime Learning Credit isn’t based on a student’s workload. A student who takes one or more courses is eligible. The credit also isn’t limited to a student’s first four years.

Qualified expenses for the Lifetime Learning Credit also include the cost of courses that aren’t part of a degree or certificate program. So, working adults who take occasional courses to strengthen their job skills are eligible to claim this credit.

Other requirements

These are other requirements for the credits:

• You can’t claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student.
• You can’t claim either of these credits if both of these are true:
  • You’re married.
  • You and your spouse file separate returns.

Both credits are phased out as your income climbs:

• Lifetime Learning Credit:
  • If you’re filing as single or head of household, the credit starts phasing out at $55,000 and is eliminated at $65,000.
  • If married filing jointly, the credit starts phasing out at $110,000 and is eliminated at $130,000.
• American Opportunity Credit:
  • If you’re filing as single or head of household, the credit starts phasing out at $80,000 and is eliminated at $90,000.
  • If married filing jointly, the credit starts phasing out at $160,000 and is eliminated at $180,000.

To learn more, see these at www.irs.gov:

• Form 8863
• Publication 970: Tax Benefits for Higher Education