Tax Guide

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Education Credits

Attending college is expensive, but luckily there are a couple of education tax credits that can help you recoup some of your costs.

(Tax Law Update: If you're looking for info about the tuition and fees deduction, sorry, that is no longer available.)

How the Education Tax Credits Measure Up

There are two education tax credits: the American Opportunity Tax Credit and the Lifetime Learning Tax Credit. If you qualify, the credit amount is taken right off the top of your tax total for the year, cutting your tax dollar-for-dollar.

Here's how the two credits work.

American Opportunity Credit

The American Opportunity Credit (AOC) is for students earning an undergraduate degree. The credit is specifically limited to those expenses incurred in the first four years of college.

The credit is worth up to $2,500, and up to $1,000 of that is refundable, meaning you could get that back as a refund even if you don’t owe any taxes. There’s an $80,000 income ceiling for single filers to qualify for the credit ($160,000 if you’re married filing jointly). If your income is more than those amounts, the credit starts to decrease.

Note that the credit is available for each qualifying student on the return. So, a family with two college students could get $5,000 trimmed off its final tax bill.

Lifetime Learning Credit

Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit (LLC) has a wider availability. The credit can be used for undergraduate expenses, graduate school, even professional or vocational courses. There’s no limit to how many years you can claim it.

The Lifetime Learning Credit is also figured a little differently. The credit amount is equal to 20 percent of the first $10,000 of qualified education expense, so the maximum is $2,000 per year. But the catch is, that's per tax return, not per student.

The Lifetime Learning Credit is also nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 credit amount, but your tax liability was only $500 for the year, you’d only get a credit for $500.

Making Your Choice at Tax Time

When you’re doing your taxes with 1040.com, you can apply for either education credit on our Education screen. Our tax return interview will help you fill out the right screens.

Also see: Tax Breaks for Students and New Grads

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