Tax Tips & Calculators

If you have post-secondary school education expenses, you might be eligible for 2 credits.

American Opportunity Credit, an Enhanced Hope Credit

You might be able to claim an American Opportunity Credit of up to $2,500 for 2011 for qualified education expenses paid for each eligible student.

The credit is calculated in 2 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, and you can only claim it for the first 4 years of higher education. This credit is 40% refundable.

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 these 3 sets of eligibility requirements:

• Eligible educational institution
• Eligible expenses
• Eligible student

Eligible Educational Institution

An eligible institution for both education credits is a post-secondary institution eligible to participate in a student financial aid program administered by the U.S. Department of Education. Institutions include:

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

Eligible Expenses

Eligible expenses for the Lifetime Learning Credit include:

• Tuition and fees required for enrollment or attendance in the course or program. This is for courses or programs you:
  
  • Take during the year
  • Plan to take within 3 months after the close of the year
• Expenses paid during the tax year for a course or program you take during the year or plan to take within 3 months after the close of the year. Expenses include:
  
  • Student-activity fees
  • Expenses for course-related books, supplies, and equipment that must be paid to the school as a condition of enrollment and attendance at the school

Eligible expenses for the American Opportunity Credit include:

• Tuition and fees required for enrollment or attendance in the course or program. This is for courses or programs you:
  
  • Take during the year
  • Plan to take within 3 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 1 academic period during the year
• Be enrolled in a course of study that leads to a degree, certificate, or other recognized educational credential
• Not have expenses used to figure an American Opportunity Credit in any 4 earlier tax years. This includes a tax year when you claimed the Hope Credit for the same student.
• Not have completed the first 4 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.

Lifetime Learning Credit

Eligibility for this credit isn't based on a student's workload. A student who takes 1 or more courses is eligible. The credit also isn't limited to a student's first 4 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

Other requirements for the credits include:

• 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 you're married and 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 credits start phasing out at $50,000 and are eliminated at $60,000. If married filing jointly, the credits start phasing out at $100,000, and are eliminated at $120,000.
  • American Opportunity Credit – If you're filing as single or head of household, the credits start phasing out at $80,000 and are eliminated at $90,000. If married filing jointly, the credits start phasing out at $160,000, and they're eliminated at $180,000.

To learn more, see:

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