American Opportunity Credit

• Expenses that qualify for the American Opportunity Credit include tuition and fees as well as course-related books, equipment and supplies. You can tap this credit for the first four years you, your spouse or your dependent pursue a post-secondary education. The person for whom you take the credit must be working toward an undergraduate degree or other educational credential recognized by the IRS. To take the credit, the student must have a schedule that is at least half time and at least one academic period during the tax year.
  
  

Lifetime Learning Credit

• With the Lifetime Learning Credit, you do not have to pursue a degree to qualify for the credit. The credit must be for you, your spouse or your dependent’s educational expenses. You can take the credit for other post-secondary educational opportunities or for courses that allow you to improve your job skills. This credit is available for any year of post-secondary education. You can use the credit to offset costs for tuition and fees and course-related books, along with any equipment and supplies you need to complete the course.
  
  

Credit Amounts

• As of September 2011, the American Opportunity Credit can amount to as much as $2,500 for each eligible student. The Lifetime Learning Credit amount stands at a maximum of $2,000.
  
  Since 40 percent of the American Opportunity Credit is refundable, you may get money back in the form of a refund even if you owe no federal income taxes, which is not the case with the Lifetime Learning Credit, for which the credit is limited to the amount of your tax obligation.
  
  Those filers whose annual income is less than $80,000, or $160,000 for married filing a joint return, qualify for the full American Opportunity Credit amount. For those claiming the Lifetime Learning Credit, the income limits stand at $60,000 for single filers and $120,000 for those who are married and filing a joint return.
  
  

Considerations

• You can only claim one credit per student in any tax year. Either the student or the parent can claim the credit, but not both. If you claim the tuition and fees tax deduction on your federal income tax return, you cannot claim the American Opportunity Credit or the Lifetime Learning Credit in the same year. Figure your income tax both ways to determine which option results in the lowest tax liability for your family. Use Form 8863 to claim your educational credits.