American Opportunity Tax Credit. The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
*** For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. For example, the cost of a required course book bought from an off-campus bookstore is a qualified education expense.
Lifetime Learning Credit. The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
*** For LLC, you must pay the expenses for higher education that result in a degree or other recognized education credential. However with the Lifetime Learning Credit, the course can also be for acquiring or improving a student’s job skills.
Expenses that Do Not Qualify
Even if you pay the following expenses to enroll or attend the school, the following are not qualified education expenses:
- Room and board
- Medical expenses (including student health fees)
- Similar personal, living or family expenses
Sports, games, hobbies or non-credit course
Expenses for sports, games, hobbies or non-credit courses do not qualify for the education credits or tuition and fees deduction, except when the course or activity is part of the student’s degree program.
For the Lifetime Learning Credit only, these expenses qualify if the course helps the student acquire or improve job skills.
Other Expense Considerations
You can claim one credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.
Qualified expenses include the costs you pay for tuition, fees and other related expenses for an eligible student.
Eligible educational institutions offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible ask your school if it is an eligible educational institution, or see if your school is on the U.S. Department of Education’s Accreditation database.
In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year.
If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes.