There are certain education credits which exist to help Americans afford higher education. These credits help with qualified higher education expenses, like tuition and course fees. Some higher education expenses such as boarding, meals, and transportation do not qualify for these credits. Furthermore, tuition paid for classes which don’t apply credit hours to the degree sought by the student are also not deductible. Expenses that have been reimbursed through a scholarship, fellowship, employer, or are paid from distributions from an educational IRA or interest from the series EE U.S. savings bond are not deductible.
If a private person has gifted you money for the expenses, or has directly paid the expenses, it will still qualify for deduction as long as the courses began in the same year you received the gift, or within the first three months of the new tax year.
Only the taxpayer, their spouse, or they’re dependent are eligible to have their day expenses deducted through these credits. If you are someone else’s dependent, you won’t be able to claim the credit, as the person who claims you as a dependent qualifies for the educational credit no matter who paid the expense.
The Two Credits
There are two credits which can help with expenses for higher education. For the first four years, taxpayers should seek the American Opportunity Credit. For extended learning, like grad school and other opportunities, look to the Lifetime Learning Credit.
For the AOC, students must be enrolled at least half time by the regulations of the school, and they have to be studying to receive a degree or certification. The LLC does not follow the same guidelines, as a student can take elective courses to strengthen any skills.
AOC is applicable per student, while the LLC is applicable per taxpayer. For the AOC 100% of the first $2000 in qualifying expenses are covered under the credit. After this 25% of the next $2,000 in expenses qualify. AOC has a limit of $2,500 on $4,000 in qualifying expenses, is refundable up to 40% even without tax liability. LLC as a 20% credit on the first $10,000 of expenses.