AOTC vs. Lifetime Learning Credit Explained

The federal tax code has two education credits for college and job-skills costs: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). You can claim only one of them for a given student, and you cannot claim both for the same student and the same expenses. You claim either one on Form 8863, Education Credits. IRS: Education credits, AOTC and LLC

The American Opportunity Tax Credit

The AOTC is for students who are working toward a degree or another recognized education credential. Key points:

It can be worth up to $2,500 per eligible student.
It is available only for the first four years of postsecondary education. The years do not have to be consecutive.
The student must be enrolled at least half time for at least one academic period during the year.
It is partly refundable. Generally, 40% of the credit can be refunded, up to $1,000.
Course materials can count as qualified expenses even when they are not paid to the school.
You must enter the school's employer identification number (EIN) on Form 8863.
A student with a state or federal felony conviction for possessing or distributing a controlled substance does not qualify.

The Lifetime Learning Credit

The LLC is for courses taken to earn a degree or other credential, or to acquire or improve job skills. Key points:

It can be worth up to $2,000 per tax return each year.
It equals 20% of the first $10,000 of qualified expenses paid for all students on the return.
The student must take one or more courses. The student does not need to be working toward a degree.
There is no limit on the number of years you can claim it.
It is nonrefundable, so it can reduce the tax you owe, but it is not paid to you beyond that.
Books and supplies count only if the school requires you to pay them directly to the school.

Rules that apply to both

The student can be you, your spouse if you file jointly, or a dependent you claim.
The school must be an eligible educational institution.
If someone else paid the expenses for the student on your return, the IRS treats them as paid by you.
Both credits phase out at higher income. The IRS sets the income limit for each tax year, so check the IRS page for the year you file.
You cannot claim either credit if someone else claims you as a dependent, or if you file as married filing separately.
Both credits require valid taxpayer identification numbers for the people listed on the return. The IRS page has the details for the year you file.

Which one may fit

A simple way to start:

A student in the first four years of a degree program, enrolled at least half time, may fit the AOTC. It can be worth more per student.
A student past the fourth year, a graduate student, or someone taking one class to build job skills may fit the LLC.
The AOTC applies per student. The LLC is capped at $2,000 for the whole return. If you have two eligible students, the AOTC can add up to more than the LLC.

When both credits might apply, work out both on Form 8863. The result depends on your expenses and income.

Gather these before you file

Form 1098-T from the school, if you received one. It may not show the exact amount you paid, so compare it with your receipts.
Receipts for tuition, required fees, and required course materials.
The school's EIN, if you claim the AOTC.
The taxpayer identification numbers for everyone listed on the return.

The IRS says to keep copies of the documents you used to decide eligibility and the credit amount. If you should have received a Form 1098-T but did not, contact the school. For more on the form, read How Do Students and Recent Graduates Handle Education Credits and the 1098-T?

This page is general information, not advice for your return. If you want to learn more, see how it works.

Sources: IRS: Education credits, AOTC and LLC (https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc); IRS: Tax credits and deductions for education (https://www.irs.gov/newsroom/tax-credits-and-deductions-for-education); IRS: Education credits FAQ (https://www.irs.gov/faqs/childcare-credit-other-credits/education-credits); IRS: Form 8863 (https://www.irs.gov/forms-pubs/about-form-8863) This is general information, not advice about your specific return.

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