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Home » Student Finances, Taxes

Education Tax Credits & Deductions in 2012

Last updated by on 23 Comments

Update: the 2013 & 2014 education tax credits & deductions have since been posted. This article is focused on 2012.

It’s back to school week for many students. This post should be timely for those of you still working on your education.

I haven’t had to spend much time thinking about education tax credits and deductions until now as I never earned enough taxable income while going to school. Now that my wife and I file jointly vs. separately, we have good reason to be a little more interested.

My wife is going through an accelerated nursing degree program at a local community college this year. So I’ve taken it upon myself to research the education tax credits and deductions for the 2012 tax year. I thought I would share what I found for those who are interested.

American Opportunity Tax Credit

The American Opportunity Tax Credit is the big student tax credit in 2012.

It is a modification to the Hope Credit under the American Recovery and Reinvestment Act (ARRA) for 2009 and 2010. It was then extended into 2011 and 2012 under the Tax Relief and Job Creation Act of 2010. This will be its last year, unless there is another extension. And it’s a healthy credit, you will definitely want to take advantage of if you’re a student.

It’s a bit different than the Hope Credit in that it can be claimed for four years of post-secondary education instead of just two. It’s also different than the Lifetime Learning tax credit, which I will detail later in this article.

Here is a rundown of how this education tax credit works and who is eligible:

  • education tax creditEligibility: The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning during the tax year.
  • Credit Amount: The American Opportunity Tax Credit is up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year per eligible student.
  • How to Claim: Determine your eligibility, credit amount, and claim the credit by filling out IRS Form 8863.
  • Refundability: 40% of the credit (up to $1,000) is refundable. This means you can get a refund even if you owe no tax.
  • Income Limits: a taxpayer whose modified adjusted gross income is $80,000 or less ($160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student. The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot claim the credit.
  • School Eligibility: You can only claim the credit if you’re attending an accredited institutions. You can search the U.S. Department of Education’s database of accredited institutions to confirm eligibility.
  • Credit can be Received for: Tax credit can be received for 100% of the first $2,000, plus 25% of the next $2,000 that has been paid during the taxable year for tuition, and required fees and course materials.
  • Ineligible Expenses: You cannot receive a credit for: room and board, insurance, transportation, expenses paid with tax-free assistance, medical expenses, expenses used for another deduction or credit, and student fees that are not required as condition of enrollment or attendance.

Lifetime Learning Credit

The other big education tax credit out there is the Lifetime Learning Credit. You cannot claim both the American Opportunity Credit and the Lifetime Learning Credit within the same calendar year for the same student (although you could for two different students). So what’s the difference between the two credits?

Lifetime Learning Credit Vs. American Opportunity Credit

The Lifetime Learning Credit is similar to the American Opportunity Credit, but with a a few key differences. Mainly, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope credit was claimed counts toward the 4 years. However, there is no limit on the number of years for which you can claim a Lifetime Learning credit based on the same student’s expenses.

The Lifetime Learning credit is also non-refundable, whereas the American Opportunity is partially refundable. And it has a $2,000 maximum vs. $2,500. And finally, it has lower income limits. For those three reasons, the American Opportunity Credit is the superior of the two and should be the default, if it can be claimed.

Here is a rundown of how Lifetime Learning education tax credit works and who is eligible:

  • Eligibility: an eligible student is a student who is enrolled in one or more courses at an eligible educational institution.
  • Credit Amount: $2,000 of the cost of tuition, fees and course materials paid during the taxable year per tax return.
  • How to Claim: Determine your eligibility, credit amount, and claim the credit by filling out IRS Form 8863.
  • Refundability: This credit is non-refundable. This means you cannot get a refund if you owe zero tax.
  • Income Limits: a taxpayer whose modified adjusted gross income is $51,000 or less ($102,000 or less for joint filers) can claim the credit for the qualified expenses on a tax return. The credit is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $61,000 ($122,000 for joint filers) cannot claim the credit.
  • School Eligibility: Available for all years of post-secondary education and for courses to acquire or improve job skills. Does not need to be an accredited institution.
  • Credit can be Received for: Tax credit can be received for 20% of the first $10,000 for tuition, and required fees and course materials.
  • Ineligible Expenses: You cannot receive a credit for: room and board, insurance, transportation, expenses paid with tax-free assistance, medical expenses, expenses used for another deduction or credit, and student fees that are not required as condition of enrollment or attendance.

Tuition and Fees Education Tax Deduction

If you are not eligible for either tax credit, you might be eligible for a tuition and fee education tax deduction. You cannot claim a deduction on the same expenses that you have claimed a credit for. I cannot foresee a reason why you would opt for a tax deduction if you were eligible for a tax credit, as tax credits are superior to deductions. A credit subtracts the amount of taxes you owe, while a deduction subtracts your taxable income.

You would be able to claim a tax deduction if your income surpassed the Lifetime Learning credit thresholds.

  • Eligibility: The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning during the tax year.
  • Deduction Amount: Up to $4,000 of the cost of tuition, fees and course materials paid during the taxable year per tax return.
  • How to Claim: Fill out form 1040, Schedule A to itemize your deductions.
  • Income Limits: a taxpayer whose modified adjusted gross income is $65,000 or less ($130,000 or less for joint filers) can claim the deduction for the qualified expenses of an eligible student or for work related expenses. The deduction is reduced if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $80,000 ($160,000 for joint filers) cannot claim the credit.
  • Ineligible Expenses: You cannot receive a credit for: room and board, insurance, transportation, expenses paid with tax-free assistance, medical expenses, expenses used for another deduction or credit, and student fees that are not required as condition of enrollment or attendance.

Disclaimer:

As much as I’d love to be (OK, not really), I’m not a tax pro, so I’d definitely recommend you refer to one or at least read through the IRS documentation on your own as well.

Have you taken advantage of any of the above education tax credits or deductions?

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23 Comments »
  • Nicholas says:

    I would like to, but “the man” decided I make too much money. We sure do love to punish success in this country…

  • Thanks for the info. I definitely needed this information since I’m taking grad school classes this fall, and it’s the first time I am not getting scholarships, so I can claim it for tax credit.

  • Victoriajon says:

    Does “the student” in these instances have to be filing independently?

  • Adrienne says:

    You say you don’t know why you would choose the deduction over the credit. However, say you don’t qualify for the American Opportunity Credit and are in the 25% marginal federal tax bracket (or higher), and you qualify for both the Lifetime Learning Credit and Tuition and Fees Deduction. If you have $4000 in expenses, you would save $800 in taxes with the credit, but $1000 with the deduction (assuming 25% bracket).

    BUT – The tuition and fees deduction is not available in 2012 so it’s not something to worry about at this point.

  • Adrienne says:

    reposting (didn’t check the notify box)

  • Melissa H says:

    Wow, just realized I totally qualified for the American Opportunity Tax Credit, but did not receive (or file for) it. I even worked with H&R Block and let my tax preparer know I was a graduate student… epic fail on their part. Well, and mine, but even when I read about the American Opportunity Tax Credit, I didn’t understand it, and trusted H&R Block to know what they’re doing.

    Guess I learned my lesson! Too bad I’m not in school anymore to claim this credit next year :(

  • Christopher W says:

    Interesting post. One area many people may still have questions is in the dreaded Senior year (May Grad). Many Universities will make tuition due before Jan 1, or on your statement check a box that says tuition paid for Jan – Mar. Is there anyway if I maxed out in 2011, I can get credit for tuition paid for 2012 Spring Semester in 2011? I think I should of delayed paying my tuition, what you get for being responsible.

    Also one area I have read but been confused is the eligibility of this and say moving expenses or for those who are a student spring semester and relocate and start work in the fall. Can both be claimed? Any thoughts?

  • hien says:

    (sorry reposting: didn’t check notify follow up comment 1st time).

    I am grad student and will file taxes for 1st time as independent. Since tuition & fees deduction isn’t available for 2012 then is the lifetime credit my only option?

    Thanks!!

  • erin says:

    I graduated Dec 2011 with a BA in Education. I was claimed as a dependent on my mom’s tax return the four years I was going to college. She did not claim any educational tax credits because I was awarded scholarships. The last two years of college I did take out a student loan to help pay for summer courses (which I did not get scholarships for)and books. Can I claim the credit on my 2012 tax return since it hasn’t been claimed in the past? I sure hope so. I worked as a teacher most of last year (Yay!) but the taxes are killing me! Welcome to the real world I guess!
    Thanks for any help you can give me. I can’t make heads or tails of the IRS explanations.

  • mrdaniel says:

    I’m confused about if I can list my tuition expenses from 2012, which included spring term, my 4th and last semester of grad school. Technically I paid them in november 2011, but according to the IRS it’s ok to incude 2011 payments for an academic semester beginning in the first 3 months of 2012, which is exactly what happened. However — I reported all my tuition expenses on my 2011 tax return — those payments I made in 2011 for 2011, and those I made in 2011 for 2012. So I can I report them again? I am not trying to make a double payment – but in 2011 my total payments were over $10,000, which means not all the payments were eligible. I would like to claim the difference, the amount over $10K, since those payments went to my 2012 spring tuition. Is this allowed?

    I can’t find an answer to this question anywhere, including IRS websites. Any help would be much appreciated!!

  • Selvam says:

    Is there anyway if I maxed out in 2011, I can get credit for tuition paid for 2012 Spring Semester in 2011?

  • john says:

    what if you attend a school like capella but do so in taking online classes are you able to still claim the tuition on your tax return as it states “attending” ???

    thanks

  • paul says:

    my wife and I earn too much money to claim the tax credit for our son. We plan to file a separate return for him in 2012 since he had a job and earned money to pay for a portion of his schooling … thereby allowing him to claim the education tax credit. My question is about who gets to claim my son as an exemption!! I understand I cannot claim him as an exemption if he is to qualify for the educatin tax credit. My tax preparer says that he cannot claim himself as an exemption either since he is a “student” claiming the tax credit. Is this right … that his $3800 federal exemption “value” will go unused???

    Thanks !!

    • Ted says:

      No. It’s not right. Somebody gets the use of his exemption. Either you or him. He can’t take the credit without claiming himself on his taxes, and you can’t take the credit without claiming him on your taxes. Without more detailed information about income, etc. I can’t tell who should claim who. I recommend doing some reading on the IRS website about education credits, etc. Also, you could be eligible to take a tuition deduction and still claim him on your taxes (higher income thresholds here). If your tax preparer can’t answer this clearly for you, I recommend looking for a new one. It’s a pretty common situation.

      http://www.irs.gov/pub/irs-pdf/p970.pdf

  • Joe says:

    Tuition and Fees deduction is still listed on the tax forms and the instructions for form 8917 say nothing about ineligle for 2012 so why are they saying it is not available?

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