Itâ€™s getting harder to find a job in this economy, so many adults are heading for their nearest college campus to increase their chances of career advancement or change their careers altogether. If youâ€™re going back to school this Fall, youâ€™re most likely looking for ways to reduce costs as much as possible.Â One way to do this is by taking advantage of educational tax breaks. Â Two popular tax-relief options are the American Opportunity Tax Credit and the Lifetime Learning Tax Credit. Hereâ€™s a breakdown of the qualifications for these credits and what each provides.
American Opportunity Tax Credit: This credit was set to expire at the end of last year, but thanks to the Â American Taxpayer Relief Act of 2012, it was extended through December 2017. The American Opportunity Tax Credit includes required course materials on the list of qualifying expenses. It also allows the credit to be claimed for four years of post-secondary education instead of two. Â It is important to note that income restrictions apply. In order to qualify for the full credit (currently up to $2,500 per student), individuals must make no more than $80,000 per year. Married couples filing a joint tax return must make an annual salary of no more than $160,000.
Lifetime Learning Tax Credit: This credit equals 20% of up to $10,000 of qualified educational expenses. The maximum credit is $2,000. You wonâ€™t qualify for this credit if youâ€™re married and donâ€™t file jointly with your spouse. Furthermore, only one Lifetime Learning credit can be claimed on your tax return per student, per year. Also, youâ€™re not allowed to claim the American Opportunity credit and the Lifetime Learning credit for the same student in the same year. Â According to the Internal Revenue Service, the credit is available for all years of higher education, including courses taken to acquire or improve job skills.
For more information, see Internal Revenue Service publication 970, Tax Benefits for Education.