With college starting in August, many families are thinking about whether tuition payments this year will translate into a tax benefit. Two federal credits are available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). They have different eligibility rules, different maximum amounts, and you cannot claim both for the same student in the same year.
Who Qualifies for Each Credit?
The two credits serve different situations, so the right choice depends on where the student is in their education.
American Opportunity Tax Credit (AOTC)
The AOTC provides a credit of up to $2,500 per student per year. The calculation is 100% of the first $2,000 in qualified expenses plus 25% of the next $2,000.
Key requirements:
- First four years of higher education only (year 5 and beyond do not qualify)
- Student must be enrolled at least half-time for at least one academic period
- Student must not have a felony drug conviction
- Qualified expenses include tuition, required fees, AND course materials (books, supplies)
Refundability: Up to 40% of the credit ($1,000) is refundable, meaning you can receive it even if it exceeds your tax liability.
Phase-out: Begins at $80,000 MAGI (single) and $160,000 (MFJ). Completely eliminated at $90,000 and $180,000.
Lifetime Learning Credit (LLC)
The LLC provides a credit of up to $2,000 per tax return (not per student). The credit equals 20% of the first $10,000 in qualified expenses across all eligible students on the return.
Key requirements:
- No limit on the number of years the credit can be claimed
- Applies to undergraduate, graduate, and professional degree programs
- Also covers courses to acquire or improve job skills (no degree required)
- Student does not need to be enrolled half-time
Non-refundable: The LLC can reduce your tax liability to zero but will not generate a refund.
Phase-out: Same range as AOTC: $80,000 to $90,000 (single), $160,000 to $180,000 (MFJ).
What Counts as a Qualified Education Expense?
Both credits cover tuition and fees required for enrollment at an eligible institution. The AOTC goes further by including course materials such as books, supplies, and equipment required for a course, even if not purchased from the school.
Neither credit covers room and board, transportation, insurance, or student activity fees unrelated to enrollment.
Expenses paid with tax-free scholarships, Pell grants, or employer-provided educational assistance do not qualify. You reduce the expenses eligible for the credit by any tax-free funds received.
How to Claim: Form 8863
Both credits are claimed on Form 8863 filed with your Form 1040. You will need a Form 1098-T from the educational institution showing tuition billed or paid for the year.
One important note: the credit is based on expenses paid in the tax year, not expenses billed. If you paid spring 2026 tuition in December 2025, that payment belongs on your 2025 return.
Comparing the Two Credits
| AOTC | LLC | |
|---|---|---|
| Maximum credit | $2,500/student | $2,000/return |
| Refundable? | Yes (up to 40%) | No |
| Year limit | First 4 years | Unlimited |
| Enrollment requirement | At least half-time | None |
| Course materials qualify? | Yes | No |
| Felony drug rule | Yes | No |
Can You Claim Both?
You cannot claim both credits for the same student in the same tax year. However, if you have multiple students in your household, you may claim the AOTC for one student and the LLC for another, provided each student independently meets the requirements for their respective credit.
If a student is in their fifth year of undergraduate school, they no longer qualify for the AOTC but may qualify for the LLC.
If you are also using a 529 plan for education savings, see our guide on the 529-to-Roth IRA rollover for another strategy that complements these credits.
Questions about education tax credits or which applies to your situation? Contact TS CPA for a free consultation. We respond within the same day.