As a student or parent of a student, you may be eligible for tax credits that can help offset the cost of education. The American Opportunity Credit and the Lifetime Learning Credit are two of the most commonly used tax credits for education expenses. In this blog post, we will explore the similarities and differences between these two tax credits.
The American Opportunity Credit
The American Opportunity Credit (AOC) is a tax credit that provides up to $2,500 per eligible student for qualified education expenses. To be eligible, the student must be pursuing an undergraduate degree or other recognized educational credential, and must not have completed four years of post-secondary education before the beginning of the tax year. The credit can be claimed for a maximum of four tax years per student.
Qualified education expenses for the AOC include tuition and fees, course materials, and required books and supplies. Room and board, transportation, and insurance costs are not eligible for the credit. The credit is also subject to income limits, and the amount of the credit is phased out for taxpayers with modified adjusted gross incomes (MAGIs) between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for joint filers.
The Lifetime Learning Credit
The Lifetime Learning Credit (LLC) is another tax credit that provides up to $2,000 per tax return for qualified education expenses. Unlike the AOC, there is no limit to the number of years that the LLC can be claimed for a particular student. To be eligible, the student can be pursuing any level of education, and can even be taking a single course to improve job skills.
Qualified education expenses for the LLC include tuition and fees, required books and supplies, and equipment that is required for enrollment or attendance. Room and board, transportation, and insurance costs are not eligible for the credit. The credit is also subject to income limits, and the amount of the credit is phased out for taxpayers with MAGIs between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for joint filers.
Differences between the AOC and LLC
The main differences between the AOC and LLC are the eligibility requirements and the types of expenses that are eligible for the credit. As previously mentioned, the AOC is only available to undergraduate students who have not completed four years of post-secondary education, while the LLC is available to students at any level of education. Additionally, the AOC can only be claimed for four tax years per student, while the LLC has no limit on the number of years that it can be claimed.
Another difference between the two credits is the types of expenses that are eligible for the credit. While both credits allow for tuition and fees to be included as qualified education expenses, the AOC also allows for course materials and required books and supplies to be included. The LLC, on the other hand, only allows for required books and supplies and equipment that is required for enrollment or attendance to be included.
Choosing between the AOC and LLC
When deciding which tax credit to use, it is important to consider your individual circumstances. If you or your dependent is an undergraduate student who has not completed four years of post-secondary education, the AOC may be the better option. Additionally, if you are eligible for the AOC, it generally provides a larger tax credit than the LLC, up to $2,500 per year per eligible student compared to $2,000 per tax return.
On the other hand, if you or your dependent is pursuing education beyond an undergraduate degree, or if you have already claimed the AOC for four tax years for a particular student, the LLC may be a better option. Additionally, the LLC has no limit on the number of years that it can be claimed, making it a more flexible option for those pursuing education over a longer period of time.
It is also important to note that you cannot claim both the AOC and LLC for the same student in the same tax year. However, you can claim one credit for one student and the other credit for another student, as long as each student meets the eligibility requirements for the respective credit.
The American Opportunity Credit and the Lifetime Learning Credit are two tax credits that can help offset the cost of education expenses. While the AOC is only available to undergraduate students who have not completed four years of post-secondary education, and allows for a maximum of four tax years per student, it generally provides a larger tax credit than the LLC. The LLC, on the other hand, is available to students at any level of education, has no limit on the number of years that it can be claimed, and is a more flexible option for those pursuing education over a longer period of time. When deciding which tax credit to use, it is important to consider your individual circumstances and eligibility requirements for each credit.
