Exceeding Expectations. Always. — Business Advisors and CPAs

An Overview of Education Tax Credits

The cost of a child's education can add up quickly. As the fall semester approaches, it's time to start thinking about available education tax credits, as they provide sizeable tax breaks since you can deduct them directly from the income tax you owe.

BatesCarter's qualified CPAs and advisors can help you figure out for which education tax credit or credits you may qualify. Credits available include the American Opportunity Credit/Hope Scholarship and the Lifetime Learning Credit. Both have many similarities, particularly when it comes to eligibility.

For example, the qualified out-of-pocket education expenses you pay this year must be for academic periods that begin this year or in the first three months of next year. Tuition and fees are qualified education expenses for purposes of claiming the credits. Room and board, on the other hand, are not.

While these tax credits share some similarities, they also differ—most notably when it comes to how much you can claim. The maximum available amount you can claim if you qualify for the American Opportunity Credit/Hope Scholarship is $2,500 per eligible student. Qualifying expenses for the American Opportunity Credit include required course materials and can be claimed for four post-secondary education years instead of two. The Hope Scholarship targets the first two years of post-secondary education, and an eligible student must be enrolled at least part time.

The most you can claim for the Lifetime Learning Credit is $2,000. There is no limit on the number of years the Lifetime Learning Credit can be claimed for each student; however, a taxpayer cannot claim both the American Opportunity Credit or Hope Scholarship and Lifetime Learning Credit for the same student in one year. Because of this, the Lifetime Learning Credit may prove helpful to graduate students, students who are only taking one course and/or those who are not pursuing a degree.

Additionally, the education tax credits differ with the adjusted gross income level at which the credits begin to shrink. The phase out for the American Opportunity Credit begins at $80,000 if you’re single and $160,000 if you're married filing jointly. The phase out for the Lifetime Learning Credit starts at $50,000 if you're single and $100,000 if you’re married filing jointly. Accountants and advisors at BatesCarter will be happy to discuss with you in more detail the available education tax credits and their benefits.