American Opportunity Credit vs. Lifetime Learning Credit

Anyone paying for college knows it’s expensive. If you’re like most students and families, any options to make college more affordable are welcome — including income tax breaks. Did you know you could lower your tax based on qualifying education-related expenses? If you paid for postsecondary education this tax year, two valuable education credits — the American Opportunity Tax Credit and the Lifetime Learning Tax Credit — could reduce your tax bill. We’ll define the details of each and then explain how these education tax credits can reduce your taxable income.

First, what is an education tax credit?

An education tax credit is a tax benefit given by the Internal Revenue Service (IRS) to help offset the costs of higher education expenses by reducing your taxes. And if the credit is more than what you owe, you could receive a tax refund. This means extra money to pocket, which is especially great news if you’re on a fixed or limited budget.

There are two education tax credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). We’ll define each below and then explain the difference between the Lifetime Learning Credit vs. American Opportunity Credit.

What is the American Opportunity Credit?

The American Opportunity Tax Credit (commonly abbreviated to AOTC or AOC) is a partially refundable income tax credit. That means if you’ve offset the taxes you owe and there’s enough credit left over, you could get money back as a tax refund. For this credit, 40% of the credit is refundable (limited to $1,000 per eligible student).

How much is it worth?

For taxpaying undergraduate students or their parents, the American Opportunity Tax Credit allows a maximum credit of $2,500 (100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of qualified expenses) for certain school-related expenses at an eligible educational institution.

What’s included?

Qualified education expenses for the AOC include:

• Tuition from an eligible undergraduate learning institution
• Mandatory school fees from an undergraduate learning institution
• Course materials, textbooks, and supplies

Expenses that don’t qualify for the AOC include the following. This means you can’t use these expenses toward your credit:

• Personal living expenses
• Transportation costs
• Medical expenses incurred while in school
•  Insurance and associated fees 
• Expenses paid with tax-free educational assistance
• Expenses used for any other tax deduction, credit, or education benefit

Who qualifies?

The American Opportunity Tax Credit is for the first four years of post-secondary education, which is usually for undergraduate college students only. Accredited vocational schools may qualify as well. To qualify, students must:

• Be pursuing a degree or other recognized education credential.
• Be enrolled at least half-time for at least one academic period beginning in the tax year.
•  Not have a felony drug conviction within the tax year.
• Not have claimed the AOTC or the former Hope credit for more than four tax years.
• Not have finished the first four years of higher education at the beginning of the tax year.

Important note: The AOC can be claimed for a maximum of four years for each student. Additionally, if you qualify to receive the credit, and nobody claims you as a dependent on their tax returns, you can claim the credit. Alternatively, parents and family members can claim the AOC if they claim the student as a tax dependent. (Related: “Rules for claiming a dependent.”)

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is another popular tax credit for college students and lifetime learners. You can claim it if you, your spouse, or your dependent are enrolled in one or more courses at an eligible post-secondary educational institution — such as an undergraduate, graduate, post-graduate, or accredited vocational school.

What’s it worth?

You receive up to $2,000 as a credit on expenses paid. (The LLC is 20% of the qualified tuition and related fees. The maximum tuition allowed to figure the credit is $10,000.) You can claim only one Lifetime Learning Credit on your return each year.

What’s included?

Qualified LLC expenses include:

• Tuition
• Mandatory school fees required by a learning institution for enrollment
• Costs for course-related books, supplies, and equipment (including computers) required to be paid to the educational institution

Expenses that do not qualify for the LLC include the following. (This means you can’t use these expenses toward your credit):

• Costs for related books, supplies, and materials not required to be paid to the educational institution
• Personal living expenses
• Transportation costs
• Medical expenses
• Insurance
• Student fees, unless it’s a condition of enrollment or attendance
• Expenses were already paid with tax-free educational assistance
• Expenses were used for any other tax deduction, credit, or educational benefit

Who qualifies?

Undergraduate, graduate, and people looking to enhance professional skills can qualify for this credit. Additionally, students with a limited course load can claim the Lifetime Learning Credit if they don’t qualify for the AOC. To be eligible for the credit, you need to:

• Be enrolled or taking classes at an eligible educational institution.
• Be taking higher education courses to earn a degree or other recognized education credential or to acquire or improve job skills.
• Be enrolled for at least one academic period beginning in the tax year.

Parents can claim the Lifetime Learning Credit on behalf of a dependent child. However, the credit is limited to $2,000 per return.  So, if you have multiple children, you can only claim the maximum credit amount of $2,000 once per return.

Have other student tax filing questions? Be sure to visit our Tax Guide for College Students for help with other relevant tax topics.

American Opportunity Credit vs. Lifetime Learning Credit: Key differences

While the credits have many similarities, there are key differences. This handy chart helps visualize them:

Weighing American Opportunity Credit vs. Lifetime Learning Credit: Why not both? 

Many people wonder if they can claim both credits. Unfortunately, only one credit can be claimed for each student on your income tax return. Also, only one Lifetime Learning Credit can be claimed on your tax return each year. But if you qualify, the American Tax Opportunity Credit is generally more valuable than the Lifetime Learning Credit.

Get help determining what education tax credit eligibility

Let’s face it: You have a lot more going on other than filing tax forms. If you’re looking for help navigating education tax credits, lean on H&R Block! Whether you file on your own with H&R Block Online or with a tax pro, we guarantee 100% accuracy and your maximum tax refund or your money back.

Take note! Some college students can file for free with H&R Block! Find out if you qualify to file using H&R Block Free Online.