Please see below for the requirements for both education credits:
You are eligible to claim the Lifetime Learning Credit if all of the following requirements are met:
- You (or your dependent or a third party) paid qualified education expenses for higher education.
- You paid the education expenses for an eligible student.
- The eligible student is you, your spouse, or a dependent you claim an exemption for on your tax return.
- Your modified adjusted gross income is less than $66,000($132,000 if you are married filing jointly).
- The credit is reduced between $56,000 and $66,000 ($112,000 and $132,000).
One of the advantages of the Lifetime Learning Credit is that you can take the credit every year for higher education as long as you meet the qualifying requirements.
Qualifications for claiming the American Opportunity Tax Credit are:
- You paid qualified education expenses for higher education (see Related Information below)
- You paid education expenses for eligible students
- The eligible student is you, your spouse, or a dependent for whom you claim an exemption
- Your modified adjusted gross income is $90,000 ($180,000 if married filing jointly) or less (The credit is reduced between $80,000 and $90,000 ($160,000 and $180,000)
- You must be taking courses at an eligible education institution, which is any college, university, or vocational school with a student aid program administered by the US Department of Education.
You must be considered an eligible student:
- You are enrolled at least half-time in a program leading to a degree,certificate, or other recognized credential
- You had at least one academic period beginning during the year
- You did not use the American Opportunity Tax Credit in any four previous years
- You did not complete the first four years of post-secondary education before the beginning of the year
- Your filing status is Married Filing Separately.
- Taxpayer is listed as a dependent on another person’s return.
- You and your spouse were non-resident aliens.
- You have a felony drug conviction.
The income qualifications for education credits (American OpportunityTax Credit or Lifetime Learning Credit) depends on your Modified Adjusted Gross Income (MAGI), not your Adjusted Gross income (AGI). Your MAGI may be too high, if you are claiming other education expense (see below) or have other income than what is in your AGI.
For the limits, see: What's the income limit for the American Opportunity and Lifetime Learning Credits?
To calculate your MAGI, take your AGI and add back certain deductions. Many of these deductions are rare, so it's possible your AGI and MAGI can be identical. According to the IRS, your MAGI is your AGI with the addition of the following deductions, if applicable:
- Student loan interest
- One-half of self-employment tax
- Qualified tuition expenses
- Tuition and fees deduction
- Passive loss or passive income
- IRA contributions
- Non-taxable social security payments
- The exclusion for income from U.S. savings bonds
- Foreign earned income exclusion
- Foreign housing exclusion or deduction
- The exclusion under 137 for adoption expenses
- Rental losses
- Any overall loss from a publicly traded partnership
we meet the eligibility for American Tax Credit except that box 5 is larger by about 5000 than box 1. We put in about 2000 at least toward education this year. I did not file for the ATC because I didnt think we could. Thoughts?
There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $5000 in box 1. At first glance he/she has $5000 of taxable income and nobody can claim the American opportunity credit (AOC). But if she reports $9000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $2000 in expenses for those course materials, she would only need to report $7000 of taxable scholarship income.