What are the American Opportunity & Lifetime Learning Credits?

Both credits are based on "qualified higher education expenses" which include tuition and course fees, but NOT boarding, meals, transportation or other "fees" assessed by the educational institution. Elective courses (no degree credit) involving sports, games or hobbies do not qualify. Also excluded are tuition and fees paid through employer reimbursement plans, scholarships and fellowships, courses deducted as a business expense, courses paid through a distribution from an Educational IRA, or excluded interest from a series "EE" US Savings Bond.

Amounts paid with gifts from private individuals do qualify for the credit. The qualifying expenses must be paid during the tax year for courses that begin during that same tax year (or within three months of the start of the following year).

The expenses must be paid for the taxpayer, his spouse, or someone who is the taxpayer's dependent for the tax year. (Dependent filers can not claim the credit. Only the parent claiming the child can claim the credit, even if the child paid the expenses with his own money.)

The basic difference between the two credits:

  • The American Opportunity Credit covers only the first FOUR years of post-secondary education, while the Lifetime Learning Credit can apply all the way through grad school (and even for qualifying courses that do not lead to any kind of a degree or certificate).

  • The American Opportunity Credit requires that the student attend at least "half time" (as defined by the school) and is studying toward a degree or recognized certification. (There are no such restrictions in the Lifetime Learning Credit. Elective courses to improve one's job skills will qualify.)

  • The American Opportunity Credit limitations apply per STUDENT, while the Lifetime Learning Credit limits apply per TAXPAYER.

The amount of the American Opportunity tax credit is:

  • 100% of the first $2,000 in qualifying education expenses, plus
  • 25% of the next $2,000 in qualifying expenses.

For a maximum credit of $2,500 based on $4,000 in qualifying expenses.

Up to 40% of the American Opportunity credit is refundable. That means up to $1,000 of the American Opportunity credit can be refunded to you, even if your tax liability is zero.

The Lifetime Learning credit is 20% of the first $10,000 in qualified educational expenses that you paid for eligible students.

Income Limits Increased for American Opportunity and Lifetime Learning Credits

For 2023, the amount of your American Opportunity Credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 (or $160,000 and $180,000 if you file a joint return).

Lifetime Learning Credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).