College tax credits – how do they work?

Dec 6, 2022

The two most popular tax credits you need to understand are the American Opportunity Credit and the Lifetime Learning Credit. Please ask your tax advisor if either of these is available to you. Given the price of college today, these credits are extremely valuable.

The American Opportunity Credit has a maximum of $2,500 with 40% being refundable but there are income limits on this credit. If your joint adjusted gross income is more than $180,000 then you cannot get this credit. Eligible education expenses for the credit include tuition, fees and course materials at an eligible educational institution. Eligible institutions are those administered by rge US Dept of Education but also include virtual schools both inside and outside the United States.

The Lifetime Learning Credit has a maximum credit of $2,000 caluclated at 20% of the first $10,000 of qualified education expenses. This credit has the same income restriction as the American Opportunity Credit as well as the same eligible education expenses. The biggest difference is that the Lifetime Learning Credit has no limit on the number of years the credit can be claimed for each student where as the American Opportunity Credit has a four year max restriction.

So as you can see, this is complicated. You definitely do not want to miss out on either or both of these credits so please be sure to ask questions of a reputable tax advisor.



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