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How do I calculate my Education Credit?

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Question
How do I calculate my Education Credit?

Answer
 

Use Form 8863 to figure and claim your education credits, which are based on qualified education expenses paid to an eligible postsecondary educational institution.  There are two education credits.

  • The American opportunity credit, part of which may be refundable. Complete Parts I, III, and IV.

  • The lifetime learning credit, which is nonrefundable. Complete Parts II and IV.

 

A refundable credit can give you a refund for any part of the credit that is more than your total tax. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.

Who Can Claim an Education Credit

You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student in tax year for academic periods beginning in the current tax year and in the first 3 months of following year.

Qualified education expenses must be reduced by any expenses paid directly or indirectly using tax-free educational assistance. See on page 2.

Generally, qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Therefore, you are treated as having paid expenses that were paid from your dependent student's earnings, gifts, inheritances, savings, etc. For more information and an example, see Who Can Claim a Dependent's Expenses in Pub. 970, chapter 2 or 3.

There are a number of factors, such as your filing status, your AGI, and whether you are subject to the alternative minimum tax, that will affect the amount of any education credit you are eligible to claim. When you figure your taxes, you may want to compare the different education credits in order to choose the method(s) that gives you the lowest tax liability. If you qualify, you may find that a combination of credits and other education benefits gives you the lowest tax. See Pub. 970 for information on other benefits.

Qualified Education Expenses

Generally, qualified education expenses are amounts paid in 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 or debit card, or with borrowed funds.

Only certain expenses for course-related books, supplies, and equipment qualify.

  • American opportunity credit: Qualified education expenses include amounts spent on 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 only amounts for books, supplies, and equipment required to be paid to the institution as a condition of enrollment or attendance.

 

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Views: 934 Created on: Jun 15, 2013
Date updated: Oct 27, 2015

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