The Lifetime Learning Credit (LLC) and American Opportunity Tax Credit (AOTC) are opportunities for you to reduce your tax bill through education-related expenses. Both credits are available to claim if you, your spouse, or your dependent are a student. But each has income and other requirements.
And you may be able to claim deductions after pursuing a higher education. The IRS provides deductions for student loan interest payments and other education-related expenses if you meet the qualifications.
The American Opportunity Credit provides an annual maximum credit of $2,500 per qualified student. The credit amount is based on the tuition statement (Form 1098-T) you submit to the IRS.
To receive the maximum amount, you must have paid at least $4,000 of qualified education expenses. The IRS allows you to claim 100 percent of $2,000 of expenses and then 25 percent of up to $2,000.
You can claim this credit if you are the student or the student is your dependent, provided that
The student meets the following requirements:
- Is pursuing a recognized education credential, like a degree
- Is enrolled at least half-time for a minimum of one academic period of the tax year
- Has yet to finish the first four years of higher education
- Has not claimed the AOTC for more than four years
- Does not have a felony drug conviction during the tax year
Likewise, your modified adjusted gross income cannot be more than the limit for your filing status. As of 2023, you can only claim the full credit if you earn less than $80,000 if single or married filing separately (or $160,000 if married and filing jointly). However, you may be able to claim a reduced credit amount if your income is between $80,001 and $90,000 (or $160,001 and $180,000 if married and filing jointly).
Although similar to the AOTC, the Lifetime Learning Credit has different requirements and is only worth $2,000 per tax return. The income limit for the LLC is $80,000 if single or married filing separately or $160,000 if married and filing jointly.
The LLC does not have the four-year limit. You can claim the credit for every year you meet the requirements. Similarly, the student does not have to be pursuing a degree or other educational credentials. The credit can apply to any learning expenses for courses that improve job skills.
Students are not the only individuals who can claim deductions for education costs. You may be able to write off up to $300 (as of the 2022 tax year) for unreimbursed expenses if you are an educator. Some of the qualified expenses can include:
- Computer equipment.
- Supplementary classroom material.
- Professional development courses.
No matter your profession, you may be able to claim a student loan interest deduction for every year you make payments. You could qualify for the maximum deduction of up to $2,500 if your modified adjusted gross income is less than $70,000 if single or married filing separately (or $145,000 if filing jointly with your spouse). However, you may be able to claim a reduced credit amount if your income is between $70,001 and $85,000 (or $145,001 and $175,000 if married and filing jointly). You can’t claim the deduction if your MAGI is $85,000 or more ($175,000 or more if you file a joint return).
Do you need more ways to reduce your personal tax debt? These next credits and deductions may be able to help you.