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Tax Credits

If you're paying for your or your dependent's college education, there are two tax credits available for you - Hope (American Opportunity) and Lifetime Learning. For tax years 2009 to 2012, the federal American Recovery and Reinvestment Act replaced the Hope Credit with the American Opportunity Credit. In 2012, federal legislation further extended the American Opportunity Credit until 2017. For more information on these programs and more, visit the Internal Revenue Service's website at www.irs.govnew_window and check out Publication 970 Tax Benefits for Educationnew_window.

What's a Tax Credit?

A tax credit is better than a deduction. A credit is subtracted directly from your federal income tax on a dollar-for-dollar basis. This saves you more money than a deduction, which you subtract from your income before you calculate your tax and which yields much less than dollar-for-dollar savings.

Who Gets to Claim the Credit?

If someone claims the student as a dependent for tax purposes, that person, not the student, may receive the tax credit, even if the student files a tax return. Otherwise, only the student may receive the credit.

What's the Difference Between the Credits?

During 2009 to 2017, the American Opportunity Credit can be claimed for each of the first four years of college or career technology school for classes that lead to a degree or recognized certificate. The student must be enrolled at least half-time to qualify for the American Opportunity Credit. The Lifetime Learning Credit is available for any postsecondary education, including graduate and professional school, and unlike the American Opportunity Credit, there is no minimum enrollment. If you qualify for both credits, it will usually be to your advantage to claim the American Opportunity Credit.

What College Costs Qualify?

Qualified expenses include tuition and required fees, minus any grants and scholarships that are received tax-free. Expenses for books and supplies are not included unless they must be paid to the institution as a condition of enrollment. The costs of room and board, insurance, transportation and medical fees (including health fees) are not qualified expenses, even if required for enrollment.