Federal Education Tax Credits

There are two education credits that can help with the cost of higher education.

American Opportunity Tax Credit:

* There is up to $2,500 tax credit available per eligible student.
* The credit applies to the first four years at an eligible college or vocational school.
* The credit reduces the amount of tax you owe. Should the credit reduce your tax to less than zero, you may receive up to $1,000 as a refund.
* The credit is available for students earning a degree or other recognized credential.
* The credit applies to students going to school at least half-time for at least one academic period that started during the tax year
* Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit:

* The Lifetime Tax Credit is limited to $2,000 per tax return, per year.
* The credit applies to all years of higher education.
* This includes classes for learning or improving job skills.
* The credit is limited to the amount of your taxes.
* Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

For both credits:

* The credits apply to an eligible student.
* Eligible students include yourself, your spouse or a dependent that you list on your tax return.
* Your school should give you a Form 1098-T, Tuition Statement, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
* You cannot claim the credits if someone else claims you as a dependent.
* You cannot claim both credits for the same student or for the same expense, in the same year.
* The credits are subject to income limits that could reduce the amount you can claim on your return.