This education tax credit and deductions overview has been updated for the 2023 and 2024 tax years. Many readers of this site are completing school for the first time or plan to go back to school to further their education. So, I’ve compiled a list of education tax credits and deductions in 2023 for those completing their tax returns and looking ahead to 2024. There were some notable changes in recent years with new legislation. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 repealed the tuition and fees deduction for tax years beginning in 2021, in exchange for increased income limitations for the Lifetime Learning Credit.
A few years back, Mrs. 20SF returned to school to complete a post-secondary accelerated nursing degree program, without any government or other assistance. While comparatively inexpensive – she went the community college route – it was still a big out-of-pocket cost.
During that time, I thoroughly researched the various education tax credits and deductions available to us and have shared a summary here to help others. In recent years, there has been some changes in what deductions and credits are available. Some were extended with congressional budget agreements, while others were left behind. The good news is that if you’re paying for school (for yourself or others), there are a number of education tax credits and deductions still available to you in 2023 and 2024. I’ll cover each in detail.
American Opportunity Tax Credit (2023 & 2024 Details)
The American Opportunity Tax Credit (AOTC) is the major student tax credit available. This tax credit had been set to expire a few years ago, but was permanently extended through a Congressional budget deal.
Some of you may remember the “Hope Credit”. The American Opportunity Credit is actually a modified replacement to the Hope Credit that was created under the American Recovery and Reinvestment Act (ARRA). It’s a bit different than the Hope Credit in that it can be claimed for 4 years of post-secondary education, instead of just 2. Note: any prior claiming of the Hope Credit counts against the 4 years cap for the American Opportunity Tax Credit.
Here is a breakdown of how this education tax credit works and who is eligible, for both 2023 and 2024:
- 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. Also, the student had not completed the first four years of post-secondary education – so grad students cannot take this credit.
- Credit Amount (for 2023 and 2024): up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year per eligible student. 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.
- Income Limits & Phaseout (for 2023 & 2024): 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 begins to phase out above those MAGI levels. If modified adjusted gross income is greater than $90,000 ($180,000 for joint filers), no credit can be claimed.
- How to Claim: Determine your eligibility, credit amount, and claim the credit by filling out IRS Form 8863. New this year: To claim the American Opportunity Credit, you must provide the educational institution’s employer identification number (EIN) on your Form 8863. You also need to file form 1098-T, which you should receive early in the year from your educational institution. It’s also worth noting that even if your income level falls below the standard minimum income to file taxes thresholds, you need to file a tax return in order to be able to claim this tax credit.
- Refundable Status: 40% of the credit (up to $1,000) is refundable. This means you can get a refund even if you owe zero tax.
- 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: 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.
- More Info: see this IRS resource.
Lifetime Learning Credit (2023 & 2024 Details)
The other big education tax credit currently available is the Lifetime Learning Credit (LLC). 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 claim both for two different students). So what’s the difference between the two credits?
Here is a rundown of how Lifetime Learning education tax credit works and who is eligible:
- Eligibility: for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses – including courses to acquire or improve job skills.
- Credit Amount (for 2023 and 2024): up to $2,000 of the cost of tuition, fees and course materials paid during the taxable year per tax return. Tax credit can be received for 20% of the first $10,000 in eligible expenses.
- Income Limits & Phaseout (for 2023 and 2024): the credit starts phasing out at an increased MAGI of $80,000 ($160,000 for joint filers) and 100% phaseout occurs at a MAGI of $90,000 ($180,000 for married filing jointly) in 2023 and 2024.
- How to Claim: Determine your eligibility, credit amount, and claim the credit by filling out IRS Form 8863.
- Refundable Status: This credit is non-refundable. This means you cannot get a refund if you owe zero tax.
- 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: 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.
- More Info: see this IRS resource.
Lifetime Learning Credit Vs. American Opportunity Credit
The Lifetime Learning Credit (LLC) is similar to the American Opportunity Credit, but with a a few key differences. You do not need to be pursuing a degree to be eligible to claim the Lifetime Learning Credit. You could be completing career development classes to learn or improve job skills, for example.
You can claim the American Opportunity Credit for the same student for no more than 4 tax years. 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 Credit is partially refundable (meaning that if you have a net tax liability below $0, it could count towards a tax refund). And it has a $2,000 annual maximum vs. $2,500 for the AOC. For these reasons, the AOC is preferable to the LLC, if you have a choice between the two.
Student Loan Interest Deduction (2023 & 2024 Details)
You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.
The deduction is claimed as an above-line adjustment to income so you do not need to itemize your deductions.
You can claim the deduction if all of the following apply:
- You paid interest on a qualified student loan in the tax year you are filing for.
- You are legally obligated to pay interest on a qualified student loan.
- Your filing status is not “married filing separately”.
- 2023 MAGI phaseout limits: you are eligible for a full deduction if modified adjusted gross income (for 2024) is less than $75,000 when filing as single, head of household, or qualifying widower ($155,000 for married filing jointly). The deduction is reduced (phased out) when your modified adjusted income is between $75,000 and $90,000 when filing as single, head of household, or qualifying widower (and between $155,000 and $185,000 for filing married filing jointly). Eligible deduction is $0 when above those income thresholds.
- 2024 MAGI phaseout limits: you are eligible for a full deduction if modified adjusted gross income (for 2024) is less than $80,000 when filing as single, head of household, or qualifying widower ($165,000 for married filing jointly). The deduction is reduced (phased out) when your modified adjusted income is between $80,000 and $95,000 when filing as single, head of household, or qualifying widower (and between $165,000 and $195,000 for filing married filing jointly). Eligible deduction is $0 when above these income thresholds.
- You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return.
- You have received form 1098-E from the educational institution for filing purposes, for those who paid over $600 in interest.
Tuition and Fees Education Tax Deduction Was Repealed (Expired for 2023 & 2024, and beyond)
The tuition and fee education tax deduction was repealed for years starting in 2021 (and is not available in 2023, 2024, and beyond) as a result of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
Tax Advantaged 529 Plans and Coverdell Education Savings Accounts
Coverdell Education Savings Accounts and 529 Plans are tax advantaged savings accounts for education expenses. I highlight both at length in the referenced links, but to summarize, each allows you to contribute savings for future education expenses, with earnings and distributions being tax-free for qualified expenses. You can even use a 529 plan for your own education expenses.
One big (and controversial) change under the Republican Tax Reform is that families can now withdraw up to $10,000 tax-free per year for K-12 at private or parochial schools. Previously, ESAs could be used for this, but contributions were capped at $2,000 per year. If you have an ESA, you can roll it over to a 529, tax-free.
Disclaimer:
Please keep in mind that 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. For more information, definitely check out IRS publication 970: Tax Benefits for Education and rely on a tax professional or tax software to walk you through eligibility.
Additionally, all of the major tax programs will help you work through the paperwork. Check out my list of the best tax software and cheapest ways to e-file for more info, including feature comparisons.
Education Tax Credit & Deduction Discussion:
- Have you taken advantage of any of the above education tax credits or deductions?
- Does the expiration of the education tax deduction impact you this year?
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