1. CREDITS: EDUCATION CREDITS

2. EDUCATION CREDITS  These credits are available to taxpayers who paid qualified education expenses for themselves, a spouse, or dependents.  There are two different Education Credits. A student may take only one.  The American Opportunity Credit is generous and partially refundable, but has more restrictions.  The Lifetime Learning Credit is less generous, nonrefundable, but more widely available.

3. Rules common to both credits A taxpayer may not take the credit if:  He/she can be claimed as a dependent on someone else’s return.  The filing status is Married Filing Separately.  The taxpayer’s AGI is above the limit.  The taxpayer (or spouse) was a nonresident alien not treated as a resident alien for tax purposes.

4. Common rules, cont’d.  Only a non-dependent taxpayer can take the credit.  If the student is a dependent, the person claiming him/her takes the credit, even if the student paid the expenses.  If the student is not claimed as a dependent, only the student can take the credit, no matter who pays the expenses.  If a third party (grandparent for ex) pays the expenses, they are considered a gift to the student. The third party cannot take the credit.

5. Common rules, cont’d.  Eligible educational institutions are those eligible to participate in student aid programs, i.e. almost all institutions.  Eligible expenses include tuition and related expenses. The definition is different for the two credits.  Taxpayers should have documentation (Form 1098- T from the school, receipts or records of expenses).

6. Common rules, cont’d. Certain expenses are not included:  Room and board;  Insurance or health fees;  Transportation, personal, living or family expenses;  Any other non-academic fees;  Any course involving sports, games, hobbies, unless part of degree program or for improving job skills.

7. Common rules, cont’d. Qualified expenses are those made from funds belonging to the taxpayer or student. They do not include payments made from:  Tax-free scholarships, Pell Grants;  Employer provided educational assistance;  Veteran’s educational assistance  Any other non-taxable payments received as assistance (except gifts, inheritances). Payments made from student loans DO count.

8. American Opportunity Credit  Open to taxpayers who meet the general requirements for education credits;  For students enrolled at least half-time in a program leading to a degree, certificate or other recognized credential;  In one of the first four years of post-secondary education;  Free of any felony conviction for possessing or distributing a controlled substance.

9. American Opportunity, cont’d.  The credit can cover up to $2,500 of eligible expenses per student.  For this credit, eligible expenses include course materials even if they are not purchased from the college.  The credit covers 100% of the first $2,000 and 25% of the second $2,000 of expenses, up to the amount of tax.  $1,000 of the credit can be refundable.

10. Lifetime Learning Credit  For students in any year of post-secondary education, or taking courses to acquire or improve job skills. There is no limit on the number of years of eligibility.  The student does not need to be pursuing a recognized credential, and does not need to be enrolled half-time.  A felony conviction is not an obstacle.

11. Lifetime Learning, cont’d.  Course-related books, supplies, fees, etc., are qualified expenses only if their costs must be paid to the school as a condition of attendance.  The credit is 20% of the first $10,000 of eligible expenses for all students on the return, up to the amount of tax. (So $2,000 for one tax return.)  No portion of the credit is refundable.

12. No multiple credits! Expenses must not be counted twice. You must not:  Take an American Opportunity Credit and a Lifetime Learning Credit for the same student in the same year.  Take an education credit using expenses that were used for an itemized deduction on Schedule A, or for a business expense on Schedule C-EZ.

13. How/Where to enter information  Information for all students on a return is entered on Form 8863, using data from Form 1098-T and taxpayer’s records.  There is a separate section for each credit.  The preparer needs to enter the name(s), SSN(s), and amounts, and TaxWise will figure the credit.