Overview

• The IRS allows taxpayers to reduce their education costs using tax deductions and credits. The American Opportunity Credit, Lifetime Learning Credit and the tuition and fees deduction all allow you to offset education expenses paid to a qualified institution. A qualified institution is any institution or university which participates in Department of Education’s student aid program. The maximum credit available for the American Opportunity Credit is $2,500, compared with $2,000 for the Lifetime Learning Credit and $4,000 for the tuition and fees deduction. The credits are claimed using Form 8863, while the tuition and fees deduction is claimed on Form 8917.
  
  

Expenses

• Included in the list of refundable expenses are the tuition costs and costs paid for course-related expenses such as books, fees, supplies or other related expenses. In essence, the government allows you to offset your college expenses against your taxable income. The IRS is partially refunding your costs by discounting what you’re paying in income tax. But if you haven’t yet incurred any education costs, you aren’t eligible to be reimbursed for them. You are not eligible for the credit if you have not already paid education expenses for yourself, your spouse or a dependent.
  
  

Limitations

• Not included in the category of qualified education expenses are travel, housing, clerical help or any equipment not required for your coursework. You are also prohibited from claiming education tuition or credits if your filing status is married filing separately, another person can claim you as an exemption or your modified adjusted gross income is more than $80,000 ($160,000 if filing jointly). In addition, you can deduct only the amount you paid out of pocket. This means you must deduct any amount paid by others in the way of scholarships or tuition reimbursements.
  
  

Considerations

• You must file Form 1040 or 1040A to claim the education credits deduction. If you can claim expenses for yourself and someone else, you can choose to take the American Opportunity Credit and the Lifetime Learning Credit on a per-student, per-year basis.