American Opportunity Credit, and Lifetime Learning Credit
American Opportunity Credit
This new education tax credit (a modification of the Hope credit) is available for 2009 and 2010. The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of postsecondary education, and 40% of the credit is refundable for most taxpayers. The threshold at which this credit is reduced is higher than that for the Hope and lifetime learning credits. For 2009, the amount of your credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return). For more information, visit the IRS Website or contact your tax consultant.
Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit available to individuals who file a tax return and have a tax liability. This means the amount of the credit is subtracted from the family's actual tax liability, rather than reducing taxable income like a tax deduction does. The Lifetime Learning credit is not refundable.
The actual amount of the credit depends on the family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (i.e., $1,000 per family) rather than dependent-based like the Hope Scholarship.
Additional information is available by visiting the National Association of Student Financial Aid Administrators.