1. Two Credits, One Choice per Student
Paying tuition can earn you one of two credits — never both for the same student in the same year: **American Opportunity Tax Credit (AOTC):** up to **$2,500 per student** — 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. It covers the **first four years** of undergraduate study, and **40% (up to $1,000) is refundable**. At least half-time enrollment required. **Lifetime Learning Credit (LLC):** up to **$2,000 per tax return** — 20% of up to $10,000 of qualified expenses. No degree or half-time requirement, no limit on the number of years — built for graduate courses, professional certification, and one-course-at-a-time adults. Never refundable. Because the AOTC is per student and the LLC is per return, a family with two undergrads usually claims AOTC for both; a parent taking a certification course while a child is in college can sometimes split strategies across the return.
2. Qualified Expenses
Tuition, fees, and **required course materials** — including books bought off-campus. Not qualified: room, board, transportation, insurance, and personal expenses. Expenses paid with tax-free funds (scholarships, tax-free 529 or Coverdell distributions) do not count twice — the qualified expense must be reduced by them first.
3. Income Phase-Outs
Both credits shrink and disappear at higher MAGI — the AOTC's range and the LLC's range differ, and they are not indexed identically. If your income lands anywhere near the ranges, the right strategy (claiming parent vs. student, AOTC vs. LLC, timing a spring tuition payment) depends on the actual numbers. Bring last year's return and this year's estimate and we will compare.
4. Form 1098-T and Why It Sometimes Looks Wrong
The college issues **Form 1098-T** reporting billed/received qualified tuition — but the credit follows what you actually *paid* in the tax year, not what the school billed. The 1098-T frequently mismatches the deductible reality because of billing-calendar timing and scholarship netting. Verify against your payment records before relying on it. Also note the AOTC can be claimed for only four tax years per student and a felony-drug-conviction rule disqualifies a student — the questions a preparer asks before claiming are not optional.
5. What You Cannot Do
- Claim either credit if your filing status is married filing separately - Double up: same student, same expenses, AOTC and LLC together - Claim expenses paid by tax-free scholarship or 529 distributions — reduce qualified expenses first - Claim either credit and also a tuition-and-fees deduction for the same student (where available)
6. If Your Student Also Works — or You Do
A student with W-2 or gig income cannot claim the credits against their own education expenses without also proving they provide over half of their own support — the usual result is the credit living on the parent's return, where the income phase-outs apply. Students driving or freelancing through school should read W-2 Job Plus a Side Hustle for how the incomes stack. Bring the 1098-T, payment records, and scholarship letters to your appointment. Book a consultation. This article is general information, not tax advice. Phase-out ranges are indexed — verify current amounts on irs.gov before filing.