Is someone in your household attending college? Whether you, your spouse or your children are taking one class or a full schedule of courses, there are ways to offset some of the costs of higher education, courtesy of the Internal Revenue Service. The IRS offers two types of education tax credits — the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) — that can help subsidize the cost of higher education by reducing the amount of tax owed on your tax return. The American Opportunity Tax Credit provides a tax credit of up to $2,500 per eligible student while the Lifetime Learning Credit provides a tax credit of up to $2,000.
To claim either type of education tax credit, you must meet these requirements:
* You, your dependent or a third party is paying the expenses for higher education.
* An eligible student must be enrolled at an eligible educational institution and the eligible student is yourself, your spouse or a dependent you list on your tax return. You cannot claim either tax credit if someone else can claim you as a dependent on their return.
There are different qualifying criteria and rules for each type of education tax credit. For example, 40% of the AOTC (up to $1,000) is refundable. Simply put, this means that you can get this amount even if the credit pays your tax down to zero. The LLC, on the other hand, is not refundable at all.
To be eligible for the AOTC, the student 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 finished the first four years of higher education at the beginning of the tax year or claimed the AOTC or the former Hope credit for more than four tax years. With the LLC, the student does not need to be pursuing a degree or other recognized education credential and can take a minimum of one course. Here’s information on each education tax credit and the differences between the two.
Another important rule: In any tax year, you must decide between either the AOC or the LLC — the same student can’t take both tax credits in the same year. If you have at least one person in your household attending college, it’s a good idea to meet with a tax professional to decide which education tax credit is right for you and how best to maximize the tax benefits of attending college.