Rules That Apply to Both Credits
What Expenses Qualify?
Generally, qualified expenses are amounts paid during the tax year for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. It does not matter whether the expenses were paid in cash, by check, by credit card, or with borrowed funds.
For course-related books, supplies, and equipment, only certain expenses qualify.
• American opportunity credit: Qualified education expenses include amounts paid for tuition, fees, and course materials, which include books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
• Lifetime learning credit: Qualified education expenses include amounts paid for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance.
Qualified expenses do not include amounts paid for:
-
Room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.
-
Course-related books, supplies, equipment, and nonacademic activities, except for fees required to be paid to the institution as a condition of enrollment or attendance.
-
Any course or other education involving sports, games, or hobbies, unless such course or other education is part of the students degree program or (for the lifetime learning credit only) helps the student to acquire or improve job skills.
If you or the student take a deduction for higher education expenses, such as on Schedule A or Schedule C (Form 1040), you cannot use those expenses when figuring your education credits.
Any qualified expenses used to figure the education credits may not be taken into account in determining the amount of a distribution from a Coverdell ESA or a Qualified State Tuition Program that is excluded from gross income.