Taxpayers with post-secondary school education expenses may be eligible for two different nonrefundable credits:
Hope Credit. You may be able to claim a Hope Credit of up to $1,650 for qualified education expenses paid for each eligible student. This is a per-student limit, and it must be taken in the first two years of higher education.
Lifetime Learning Credit. You may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses that you paid. You can claim this credit only once per return, but there is no limit on the number of years the credit can be claimed.
Although, the Lifetime Learning Credit is limited to $2,000, you can claim as many students as are eligible until you reach a maximum of $10,000 in expenses. To claim this credit for multiple students, figure the expenses for each student, and then combine their expenses together. Since the total can’t be more than $10,000 and the credit is equal to 20% of the expenses, the maximum credit allowed is $2,000 (20% of $10,000).
To qualify for either credit, you must meet three different sets of eligibility requirements—institution, expenses, and student.
An eligible institution for both education credits is defined as any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student financial aid program administered by the U.S. Department of Education.
Eligible expenses for both education credits include:
Tuition and fees required for enrollment or attendance in the course or program.
Expenses paid during the tax year for a course or program taken during the year, or to be taken within three months after the close of the year. This includes student-activity fees and expenses for course-related books, supplies, and equipment that you purchase at the school.
Ineligible expenses for the education credits include:
Personal expenses for housing, meals, incidentals, transportation, medical expenses, and insurance.
Student activity fees and expenses for course-related books, supplies, and equipment purchased elsewhere. For example, you can’t claim expenses for books that you purchase at a big-chain bookstore.
Hobby, games, sports, or noncredit courses unless required as part of the program.
The credits have different definitions of "eligible student":
Hope Credit. An eligible student must meet all the following requirements. The student must:
Carry at least half the normal full-time workload for the student’s course of study in at least one academic period during the year.
Be enrolled in a course of study that leads to a degree, certificate, or other recognized educational credential.
Not have completed the first two years of higher education as determined by the institution
Not have claimed the credit in more than one previous year.
Not have been convicted of a felony offense for possessing or distributing a controlled substance.
Lifetime Learning Credit. Eligibility for this credit is not based on a student’s workload. A student who takes one or more courses is eligible. In addition, the credit isn’t limited to a student’s first two years.
Qualified expenses for the Lifetime Learning Credit also include the cost of courses that aren’t part of a degree or certificate program. Because of these differences, working adults who take occasional courses to strengthen their job skills can claim this credit.
There are a few other requirements worth mentioning:
You can’t claim two different credits for the same student.
You can’t claim either of these credits if you and your spouse file separate tax returns.
Both credits are phased out as your income climbs. If you’re filing a single or head of household return, the credits start phasing out at $47,000 and are totally eliminated at $57,000. If you and your spouse file a joint return, the credits start phasing out at $94,000, and are totally eliminated at $114,000.
For more information, see these resources:
Interview for Form 8863
Form 8863