The American Opportunity Credit applies to the first four years of higher education, while the Lifetime Learning Credit extends to grad school and even for learning opportunities that don’t result in a degree or certificate.
The AOC requires students to be enrolled at least half-time under the rules of the school, and the study results in a degree or certification. The LLC does not apply the same limitations, as elective courses to strengthen career skills can qualify.
The AOC applies per student, whereas the LLC applies per taxpayer.
With AOC, 100% of the first $2,000 in qualifying education expenses, as well as 25% of the next $2,000 in expenses are covered by the credit. The limit on the AOC is a maximum of $2,500 on $4,000 in qualifying costs.
The AOC is refundable up to 40%, which equals $1,000 that may be given to you, even if you have no tax liability.
The LLC offers a 20% credit on the first $10,000 of qualified expenses.