The sweeping changes of the Tax Cuts and Jobs Act of 2017 spared the higher education tax credits. This is great news if you paid for post-secondary education for yourself or a dependent this year. Review your eligibility with this side by side comparison of the American Opportunity Tax Credit and the Lifetime Learning Credit.
To be eligible for either of these credits, you must meet three criteria:
- You, your dependent, or a third party paid qualified education expenses for higher education (qualified expenses do not include room and board, transportation, insurance, and some fees)
- The student is enrolled at an eligible post-secondary institution
- The student is yourself, your spouse, or a dependent you claim on your tax return
If you meet those conditions, review the breakdown of these two valuable credits below.
| American Opportunity Tax Credit | Lifetime Learning Credit | |
| Maximum Benefit |
100% of the first $2K in expenses and 25% of the next $2K: max $2,500 per eligible student |
20% of the first $10K in expenses: max $2,000 per tax return |
| Refundable or non-refundable | Refundable up to 40% of credit | Not refundable |
| Eligible if married filing separately? | No | |
| Phase out begins at MAGI |
Married filing joint: $180,000 Other statuses: $90,000 |
Married filing joint: $136,00 Other statuses: $68,000 |
| Dependent status | Cannot claim credit if you are claimed as a dependent on someone else’s return | |
| Must the taxpayer be a citizen or resident alien? | Yes, unless nonresident alien is treated as resident alien for tax purposes | |
| Maximum number of tax years credit is available | 4 years per eligible student | Unlimited |
| Type of program required | Student must be pursuing a degree or recognized credential | Student can be pursuing a credential or taking courses to get or improve job skills |
| Minimum enrollment required | Must be enrolled at least half time for at least one academic period beginning in the tax year | Available for one or more courses |
| Felony Drug Conviction | No felony drug convictions as of the end of the tax year | Not applicable |
| Qualified expenses covered* | Tuition, required enrollment fees, course materials | Tuition and fees required for enrollment and attendance |
| For whom can the taxpayer claim the credit? | Themselves, their spouse, or a student they claim as a dependent on their tax return | |
| Who must pay the qualified expenses? | The taxpayer, their spouse, the student, or a third party | |
It is possible to claim both credits on the same tax return, but they cannot be claimed for the same student and the same expenses. Some tax-free assistance, like a grant, must be subtracted from your qualified education expenses.
Both credits are claimed using Form 8863 Education Credits. You will be required to attach Form 1098-T Tuition Statement, which is furnished by your educational institution.
Room and board, insurance, medical expenses, health fees, transportation, and living expenses are not qualified education expenses. Expenses for clubs, sports teams, and non-credit courses do not qualify except where they are part of the student’s degree program.
Please bring your 1098-E and/or your 1098-T to your tax preparation appointment. We also require an accounting transcript from the school, receipts of any qualified education expenses, and records of any scholarships, grants, or fellowships received to be able to file your return. If you are a client with questions give us a call at 860-216-2195 or email your personal Bacon & Gendreau tax professional.
Kids not quite ready for college? Check out the TCJA updates to the Child Tax Credit.
