American Opportunity Tax Credit
Up to $2,500 per eligible student, 40% refundable. First four years of undergraduate only, half-time enrollment minimum, no felony drug conviction. Phases out at $80K single / $160K MFJ. The formula is 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000, so $4,000 of expenses per student captures the maximum.
Lifetime Learning Credit
Up to $2,000 per return (not per student), non-refundable. Works for graduate school, continuing education, and job-skill courses. Same phase-out as AOTC. There's no four-year limit, no half-time requirement, and no degree requirement, which makes it the catch-all for every education expense the AOTC won't take.
Reading the 1098-T without being misled
The school's Form 1098-T reports payments received for qualified tuition in Box 1 and scholarships in Box 5, and the two rarely tell the whole story. Spring tuition paid in December belongs to the year paid. Scholarships reduce the expense base unless they're taxable to the student. And for the AOTC specifically, required course materials count even when bought off campus, so book and equipment receipts add real dollars the 1098-T never shows.
Who claims: parent or student
The person who claims the student as a dependent claims the credit, no matter who wrote the tuition check. A dependent student claims nothing. When parents are phased out by income, it's sometimes worth not claiming the student so the student can claim the credit themselves, though a dependent-eligible student can't take the refundable piece of the AOTC. That's a run-the-numbers decision, not a rule of thumb.
Coordinating with 529 withdrawals
No double-dipping: expenses paid with tax-free 529 money can't also support a credit. The standard play is to earmark $4,000 of tuition for the AOTC and pay it from non-529 funds, letting the 529 cover the rest. Done backwards, the credit shrinks or part of the 529 withdrawal turns taxable.
Common questions
- Can I claim both credits?
- Not for the same student in the same year. You can claim AOTC for one child and LLC for another in the same return.
- My student is on a full scholarship. Any credit?
- Only out-of-pocket qualified expenses count. With tuition fully covered, required books and supplies purchased out of pocket may still support a small AOTC claim.
- Does graduate school qualify for the AOTC?
- No, the AOTC ends after four years of undergraduate study. Graduate coursework takes the Lifetime Learning Credit.
- What records should I keep beyond the 1098-T?
- Bursar account statements showing what was actually paid and when, plus receipts for required books and materials. The 1098-T alone frequently doesn't match reality, and the account statement is what resolves an IRS inquiry.
Related
Related tax topics
Adoption Tax Credit
Up to $16,810 for qualified adoption expenses like fees, court costs, and travel. Special needs adoptions claim the full amount regardless of actual expenses.
Premium Tax Credit
Form 8962 reconciles advance ACA Marketplace subsidies against your actual income. If income changed mid-year, repayment or additional credit applies.
Federal Electric Vehicle Tax Credit
Up to $7,500 for new EVs and up to $4,000 for used ones. Income limits, North American assembly rules, and how transferring the credit to the dealer works.
Home Energy Efficiency Tax Credits
The 25C credit returns 30% of insulation, window, door, and heat pump upgrades, plus $150 for a home energy audit. Annual caps apply, claimable every year.