Most taxpayers who are in college or paying the education expenses of a family member are eligible to claim a tuition credit or deduction on their income tax return. Generally, taxpayers who fall into one of the categories outlined above qualify for the American Opportunity Credit or the Lifetime Learning Credit. Both credits allow deductions for tuition expenses, and have corresponding Internal Revenue Service (IRS) forms that are reasonably easy to complete.
Know the credit limits. In order to qualify for the American Opportunity Credit or the Lifetime Learning Credit, you must be in school yourself, or subsidizing the expenses of an immediate family member (spouse or dependent) who is in school at least part time. If you meet this qualification, you are eligible to claim tuition and possibly, book expenses on your tax return. You are not, however, eligible to claim monies spent on travel, room and board or any other miscellaneous, school-related expenses.
Be in the first four years of college. If the student for whom you are claiming a tuition credit on your taxes is in the first four years of college and pursuing an undergraduate degree, you qualify for the American Opportunity Credit. To claim this credit, complete IRS Form 8863 and attach it to your Form 1040. The American Opportunity Credit allowance is 100 percent of the first $2,000 in expenses, and 25 percent of the second $2,000.
Be beyond the first four years of college. If the student for whom you are claiming a tuition credit is going to school, but is not in the first four years of postsecondary education or is not pursuing an undergraduate degree, you qualify for the Lifetime Learning Credit. In order to claim the Lifetime Learning Credit, complete Form 8863 and attach it to your Form 1040. The allowance for the Lifetime Learning Credit is 20 percent of the first $10,000, with a maximum of $2,000.
If you do not qualify for an educational tax credit, you may be eligible for the tuition and fees deduction. This deduction allows a deduction of up to $4,000 of tuition and books for undergraduate and graduate studies. This deduction is claimed on IRS Form 8917 and begins to phase out when a taxpayer's income reaches $65,000 (or $130,000 for married taxpayer's filing jointly).
The American Opportunity tax credit begins to phase out when the taxpayer's income reaches $80,000 (or $160,000 if married filing jointly) and Lifetime Learning credit begins to phase out when the taxpayer's income reaches $52,000 (or $104,000 if married filing jointly).
Remember, a tax credit is usually better than a tax deduction so you should claim a credit if you qualify. If you pay tuition to a qualified educational institution during the year, you should receive IRS Form 1098-T in January to assist you in preparing IRS Forms 8863 or 8917.
Be advised that you cannot take the tuition and fees deduction if your filing status was married filing separately for the tax year in which you are filing, or if the student for whom you are taking the credit is a convicted felon. In addition, you cannot take both a American Opportunity Credit and a Lifetime Learning Credit for the same student, or claim expenses that were paid by another.
Things You'll Need
IRS Form 8863
IRS Form 1098-T