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Form 8863 is used to claim the American Opportunity Credit and the Lifetime Learning Credit for qualified education expenses.
The American Opportunity Credit replaced the Hope Credit and is available for the first four years of postsecondary education. The credit is up to $2,500 per eligible student, and 40% of it may be refundable. The credit phases out for married taxpayers with income between $160,000 and $180,000 and single taxpayers with income between $80,000 and $90,000.
The Lifetime Learning Credit is a credit of up to $2,000 per student available for any college tuition paid during a year that the American Opportunity Credit is not claimed. The credit is 20% of any tuition or class fees paid up to $10,000 (for a total allowable credit of $2,000). Athletic fees, housing costs, student activity fees and books are not eligible expenses for the American Opportunity or Lifetime Learning credits. The credit phases out for married taxpayers with adjusted gross income between $110,000 and $130,000. For single taxpayers and others not filing a joint tax return, the adjusted gross income phase out is between $55,000 and $65,000. Unlike the American Opportunity Credit, you don't have to be a half-time student to claim the Lifetime Learning Credit.
If your income is too high to take the American Opportunity or Lifetime Learning credit for your child's education expenses, IRS regulations allow your child to claim the American Opportunity or Lifetime Learning credit on his or her own tax return as long as you do not claim your child as a dependent on your tax return. Alternatively, you may still be eligible for the education deduction which has a higher income limitation.
Up to $4,000 in education expenses can be deducted on your tax return if your modified adjusted gross income (MAGI) is not more than $80,000 ($160,000 on a joint return). If you choose to deduct the education expenses, you can not take the American Opportunity or Lifetime Learning credit on the same education expenses. It depends on each taxpayer's circumstances whether it is better to deduct the education expenses or take the American Opportunity or Lifetime Learning credit. Tuition and fees paid for the education of the taxpayer, the taxpayer's spouse or a dependent child are eligible for the deduction.