Understanding Education Credits
Education credits are tax credits that can reduce the amount of taxes you owe. There are two main education credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
Qualified Education Expenses for AOTC
The AOTC is available for qualified expenses paid for the first four years of post-secondary education. Eligible expenses include:
- Tuition and fees
- Course-related books, supplies, and equipment
- Required fees for enrollment or attendance
Qualified Education Expenses for LLC
The LLC is available for qualified expenses paid for education beyond the first four years of post-secondary education. Eligible expenses include:
- Tuition and fees
- Course-related books, supplies, and equipment
- Required fees for enrollment or attendance
Expenses That Do Not Qualify
The following expenses do not qualify for either the AOTC or the LLC:
- Room and board
- Transportation
- Insurance
- Medical expenses
- Student fees, unless required as a condition of enrollment or attendance
- Same expenses paid with tax-free educational assistance
- Same expenses used for any other tax deduction, credit, or educational benefit
Additional Considerations
- The maximum amount of the AOTC is $2,500 per eligible student, with up to 40% of the credit (up to $1,000) refundable.
- The maximum amount of the LLC is $2,000 per tax return, with no refundable portion.
- To claim the AOTC or LLC, you must meet certain eligibility requirements, including being enrolled at least half-time in a qualified educational institution.
Understanding which expenses qualify for education credits can help you maximize your tax savings. By carefully reviewing the eligible expenses and meeting the eligibility requirements, you can take advantage of these valuable tax benefits.
The CORRECT way to Calculate Education Tax Credits | 1098-T Explained
FAQ
What is the qualified education expense deduction for 2020?
Which of the following expenses qualifies for an education credit?
What are eligible education expenses?
Which of the following expenses are qualifying expenses for the purposes of the education credits?
What expenses qualify for an education credit?
Expenses that qualify for an education credit (whether the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit) are qualified tuition and related expenses paid by the taxpayer during the taxable year.
What are qualified tuition and related expenses for the education tax credits?
A5. In general, qualified tuition and related expenses for the education tax credits include tuition and required fees for the enrollment or attendance at eligible post-secondary educational institutions (including colleges, universities and trade schools).
What are qualified education expenses?
Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. A third party including relatives or friends. You can claim an education credit for qualified education expenses paid by cash, check, credit or debit card or paid with money from a loan.
What are education credits?
Education credits are amounts that will reduce the amount of tax due. The amount is based on qualified education expenses that the taxpayer paid during the tax year. There are two diferent education credits: the American opportunity credit and the lifetime learning credit. The American opportunity credit allows 40% of the credit to be refundable.