The American Opportunity Tax Credit (AOTC) & Lifetime Learning Credit are the two available educational credits for the upcoming tax year. These credits are very useful when it comes to offsetting tax liability and can help to alleviate some of the financial pressure that comes with a higher education. The taxpayer can choose between either the AOTC or Lifetime Credit, they cannot take both in the same year.
The AOTC is limited to undergraduate study and is available to be used up to 4 times for each qualifying student. The taxpayer can claim up to $2,500 per student for the first $4,000 spent. Of the eligible credit, up to 40% is refundable, meaning even if the taxpayer doesn’t have any tax liability, they will still get the benefit of the credit. Expenses that qualify when calculating the credit are tuition and education materials i.e. books. Room and board, medical, and transportation costs do not count as expenses towards AOTC. Like most credits, the AOTC phases out at $80K – $90K filing single or $160K – $180K as married filing jointly.
The Lifetime Learning Credit can be taken for both graduate and undergraduate studies. There is no limit on the amount of times a taxpayer can use the credit. The taxpayer can claim 20% of higher education expenses up to $10,000. The maximum amount of the credit is $2,000. Qualified expenses are tuition and expenses related to enrollment. Phase-out begins at $54K -$64K filing single and $108K-$128K as married filing jointly.
These credits can be claimed on Form 8863, which will flow through to Form 1040.
There is also a New York State college credit available for fulltime undergraduate residents only. The maximum credit allowed is $400 and can be claimed by completing form IT-272.