Your school could be talking about three different tax benefits available for education-related expenses:
- The tuition and fees deduction
- The American Opportunity Tax Credit (AOTC)
- The Lifetime Learning Credit (LLC)
The tuition and fees deduction can reduce the amount of income subject to tax by up to $4,000. Depending on your income and filing status, you may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent(s).
According to the IRS, this deduction cannot be claimed if:
- your filing status is married filing a separate return;
- another person can claim an exemption for you as a dependent on his or her return;
your modified adjusted gross income is more than $80,000 ($160,000 if married, filing a joint return);
- you were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes; or
- an education credit is claimed for expenses of the student for whom the qualified expenses were paid.
The AOTC is a credit for qualified education expenses paid by or for an eligible student for the first four years of higher education. It can reduce the amount of tax you owe.The maximum allowable credit is $2,500 per eligible student. If the credit brings your tax down to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you. To claim the full credit, modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).
The LLC also can reduce the amount of tax you owe. The amount of the credit is for 20% of the first $10,000 of qualified educational expenses. The maximum credit is limited to $2,000.00 per taxpayer return, not per student. So even with more than one student, the credit will be limited to $2,000 per the return. You can’t claim this credit if you claimed the AOTC for the same student. This credit is typically for graduate students who are not eligible to claim the AOTC. To claim the full credit, MAGI must be $66,000 or less ($132,000 or less for married filing jointly).