Education Credits (Lifetime Learning and American Opportunity Credits)
You may use IRS Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to figure and claim your education credits, which are based on qualified education expenses paid to an eligible postsecondary educational institution. There are two education credits.
- The American Opportunity Credit, part of which may be refundable.
- The Lifetime Learning Credit, which is nonrefundable.
The new tax law didn’t change either the Lifetime Learning Credit or the American Opportunity Credit reported on IRS Form 8863. The income limits for both the Lifetime Learning Credit and American Opportunity Tax Credit are subject to inflationary adjustments.
If you, your spouse, or your dependent are enrolled in a higher education institution, you can take one (not both) of the following education credits to help cover the cost of qualified education expenses:
- Lifetime Learning Credit: A nonrefundable credit for 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return.
The credit is only available if your modified adjusted gross income (MAGI) is $66,000 or less or $132,000 or less if you are married and filing a joint tax return. The credit begins to phase out when your MAGI reaches $56,000 (or $112,000 for married taxpayers filing a joint tax return).
- American Opportunity Credit: A credit for qualified education expenses paid for an eligible student pursuing a degree and in the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.
The amount of the credit is 100 percent of the first $2,000 of qualified education
expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you. The credit begins to phase out once your MAGI reaches $80,000 ($160,000 for married taxpayers filing a joint tax return).
You can claim either credit for qualified education expenses paid with the proceeds of a loan. Neither credit is available if you file married filing separately. For more information on the requirements to take each credit and calculations of the amount of each credit, see IRS Publication 970, Tax Benefits for Education.
The new tax law didn’t change either the Lifetime Learning Credit or the American Opportunity Credit reported on IRS Form 8863.
The income limits for both the Lifetime Learning Credit and American Opportunity Tax Credit are subject to inflationary adjustments.
How will this affect me?
Logan is enrolled in law school while working full time as a paralegal. The amount of tuition and fees he paid during 2018 is $10,500. His MAGI is $60,000. Logan can’t take the American Opportunity Credit because he is not enrolled in the first four years of college. He can claim a $2,000 Lifetime Leaning Credit (20 percent of the first 10,000 of eligible education expenses).
Same as above, except Logan is enrolled in an undergraduate college program pursuing a degree in computer science. He is eligible to take the American Opportunity Credit and can take the full $2,500 credit.