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American Opportunity and Lifetime Learning Tax Credits Information

Free Tax Preparation!
Durham Tech is a partner of The Benefit Bank® of North Carolina (TBB™-NC), which offers Federal and State Tax Filing (Up to three years back taxes).

There is also free, volunteer tax preparation in Durham for low/moderate income taxpayers ($52,000 or less). View the schedule

TaxHelp.org may also be used as a resource for general guidance and answering questions.

Attending a North Carolina community college is more affordable than ever. Tuition at North Carolina's community colleges is among

the lowest in the country. Also, federal Pell Grants provide financial assistance to many students attending one of our 58 community colleges.

In addition to federal assistance available, the North Carolina General Assembly provides a generous financial aid fund for community college students. Need-based grants are available to full-time and part-time students.

Students with qualifying income levels can also take advantage of federal tax incentives to make attending a North Carolina community college even more financially attainable. The American Opportunity tax credit replaces the Hope Scholarship tax credit, as part of the American Recovery and Reinvestment Act of 2009 and the The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The American Opportunity and Lifetime Learning Tax Credits are available to community college students.

In most cases the American Opportunity tax credit (formerly known as the Hope Scholarship) will yield a greater financial benefit than the Lifetime Learning tax credit. In any one tax year, you may claim either the Hope Scholarship tax credit or the Lifetime Learning Credit for a student's expenses. If you pay qualified expenses for more than one dependent student, you may choose which tax credit to take for each student.

For a brief review of tax credits and deductions visit the IRS Tax Benefits for Education Information Center.

How much can a taxpayer claim?
The American Opportunity tax credit replaces the Hope Scholarship tax credit and will be active until December 2017. It is a refundable tax credit for undergraduate college education out-of-pocket expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable.

Forty percent of the American Opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details.

The American Opportunity tax credit is not subject to the Alternative Minimum Tax (AMT).

For the Lifetime Learning Credit, the credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. The maximum for a taxable year is $2,000. The Lifetime Learning Credit is calculated on a per-family rather than a per-student basis. The amounts a taxpayer may claim are gradually reduced based on their income.

The American Opportunity or Lifetime Learning credit cannot be claimed against the following sources:

  • 529 Plans
  • Tax free Scholarships
  • Pells Grants
  • Coverdell Education Savings account (ESA)
  • Employer provided education assistance
  • Military educational assistance
  • Any other tax-free educational assistance

What criteria must a student meet to be eligible?
Credit may be claimed for the qualified tuition and related expenses of each student in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent).

The American Opportunity credit may be claimed for the student who meets the following requirements:

  • Has not completed the first four years of college;
  • Is enrolled in a program that leads to a degree, certificate, or other recognized educational credential;
  • Is taking at least one-half the normal full-time workload in a course of study for the academic period during the calendar year; and
  • Has never been convicted of a felony for possessing or distributing a controlled substance.

Who is eligible for the Lifetime Learning Credit?

  • The Lifetime Learning Credit is not based on the student's workload. It is allowed for one or more courses.
  • The Lifetime Learning Credit is not limited to students in the first two years of post secondary education.
  • Expenses for graduate-level degree work are eligible.
  • There is no limit on the number of years for which the Lifetime Learning Credit can be claimed for each student.
  • The amount you can claim as a lifetime learning credit does not vary based on the number of students for whom you pay qualified expenses.
  • Nonresident aliens who did not elect to be treated as a resident alien for tax purposes are not eligible for either tax credit. More information can be found in IRS publication 519 (2012 will be available at this link shortly), U.S. Tax Guide for Aliens.
Who may claim the tax credit?
Individuals may claim the credit for their own qualified tuition and related expenses and the qualified tuition and related expenses for spouses and other eligible dependents (including children) for whom the dependency exemption is claimed. Generally, parents may claim the dependency exemption for their unmarried child if
  1. The parent supplies more than half the child's support for the taxable year, and
  2. The child is under age 19 or is a full-time student under age 24.
What are "qualified tuition and related expenses" for a community college?
Qualified tuition and related expenses are the tuition and fees a student is required to pay in order to attend the community college. The eligible courses to receive the credit must be courses that will lead the student toward a degree or certificate or other recognized educational credential. It does not include courses involving sports, games, or hobbies unless it is part of the degree program. Books and courses materials are eligible expenses. Student activity fees, supplies, and equipment are eligible expenses only if they must be paid to the college as a condition of enrollment or attendance. Insurance, medical expenses (including student health fees), room and board, transportation, personal, living or family expenses, and noncredit course fees are not eligible expenses.

Does any type of payment for education expenses qualify?
The student may take into account only out-of-pocket expenses in calculating the credit. Qualified tuition and related expenses paid with the student's earnings, a loan, a gift, an inheritance, or personal savings are taken into account in calculating the credit amount. However, qualified tuition and related expenses paid with a Pell Grant or other tax-free scholarship, a tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance are not taken into account in calculating the credit amount.

Is there a maximum income limit to be eligible to claim the tax credit?
The American Opportunity tax credit allows taxpayers with a modified adjusted gross income (MAGI) of $80,000 or less for single filers and $160,000 or less for married couples filing a joint return may be eligible for the full tax credit. Education credit is gradually phased out for joint filers between $160,000 and $180,000 of income, and for single filers between $80,000 and $90,000. See the IRS form 8863 for the revised AGI limits. The IRS has also complied Frequently Asked Questions about the American Opportunity tax credit.

You cannot claim any higher education credits if your modified adjusted gross income is $90,000 or more for a single return ($180,000 for a joint return).

How do I claim the tax credit?
To apply for the credit, the taxpayer must figure the amount of education credits by completing IRS form 8863. Use Part I for the Hope Scholarship credit and Part II for the Lifetime Learning Credit. In both parts, enter the student's name and taxpayer identification number (usually a social security number) and the amount of qualified expenses paid in 2011. Then complete Part III to compute the amount to enter on line 44 of Form 1040 or line 29 of 1040A. Attach the completed IRS form 8863 to your return.

The community college will send you Form 1098-T, a statement of payment of qualified tuition and related expenses and other information, by January 31, 2012.

Information on Form 8863 will help you determine whether you qualify for an education tax credit for 2011. If you do qualify, the following information should be included on the 2011 form:

  1. The name, address, and taxpayer identification number of the community college
  2. The name, address, and taxpayer identification number of the student
  3. Whether the student was enrolled for at least half of the full-time academic workload

Your community college may ask for a completed Form W-9S, Request for Student's or Borrower's Social Security Number and Certification, or similar statement, to obtain the information needed to complete #2 above.

Further information and examples are available in the IRS publication 970 and on the IRS web site under a review of tax benefits for education.

This information is not a substitute for professional tax advice.

A Summary Table Comparing the Education Credits
American Opportunity Credit Lifetime Learning Credit
Up to $2,500 credit per eligible student Up to $2,000 credit per return
Available only until the first 4 years of post secondary education are completed

Available for all years of post secondary education and for courses to improve or acquire job skills

Available for the first 4 tax years per eligible student Available for an unlimited number of years
Student must be pursuing an undergraduate degree or other recognized education credential Student does not need to be pursuing a degree or other recognized education credential
Student must be enrolled at least half time for at least one academic period beginning during the year Available for one or more courses
No felony drug conviction on student's record Felony drug conviction rule does not apply



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