The Lifetime Learning Credit and the American Opportunity Credit are now the principal tax credits for education. For 2021 and beyond, both credits now have the same income phaseout range: $80,000 to $90,000 of adjusted gross income for most single filers, and $160,000
to $180,000 for most married couples filing jointly.
The American Opportunity Credit provides a maximum
tax reduction of $2,500 per student per year, which is composed of 100% of the
first $2,000 of eligible expenses and 25% of the next $2,000. In general, it is
available for the first four years of postsecondary education, and it applies to
tuition and course-related expenses, not room and board.
The Lifetime Learning Credit is typically less generous, but applies to a broader
range of education expenses. It is a tax offset of 20% of up to $10,000 of eligible
expenses, or up to $2,000 per taxpayer per year. It can be used not only for
undergraduate education but also for graduate education, continuing education,
and jobs-skills classes even if the skills aren’t related to current employment.
A taxpayer can’t claim more than one of these credits for the same student
per year.