Tax Credits for Going Back to School

Use Form 1040 to claim your tax credits for going back to school.

Use Form 1040 to claim your tax credits for going back to school.

Going back to school will not only improve your job prospects -- it might also boost your tax refund. The Internal Revenue Service offers several two tax credits for going back to school. These credits are only available for post-secondary education at universities, trade schools, community colleges and the like.

American Opportunity Credit

If you haven't finished your bachelor's degree, you might qualify to claim the American Opportunity Credit. To be eligible, you can't have finished your bachelor's degree and you can't have claimed the American opportunity credit four times already. This includes times your parents claimed the American opportunity credit for you. Other criteria require that you be enrolled at least half-time, don't have any felony drug convictions and be pursuing a degree or other recognized credential. In addition, your income has to fall below the annual limits. If you're eligible, the credit equals 100 percent of your first $2,000 of qualified expenses and 25 percent of your next $2,000 of expenses. Up to 40 percent is refundable, even if you don't owe any taxes. Qualifying expenses include not only tuition and fees, but also your books and supplies. For most people, the American Opportunity credit offers the biggest break of the different education credit options, though it is set to expire after 2012 if it isn't extended.

Lifetime Learning Credit

The other credit available for college or graduate school is the Lifetime Learning Credit. To qualify, you can be enrolled in any number of classes and felony drug convictions don't disqualify you. The credit equals 20 percent of up to $10,000 of qualified expenses. Qualified expenses only include tuition and required fees, not supplies or books unless the school requires you to purchase them from the school as a condition of attendance. You also have to fall below the annual income limits.

Tuition and Fees Deduction

Though it's not technically a credit, the Tuition and Fees Deduction does offer a tax break for going back to school. This deduction lets you write off up to $4,000 and you don't have to itemize to claim it. It also has a higher income limit than the Lifetime Learning Credit. Your qualified expenses include tuition and required fees, just like the Lifetime Learning Credit.

One Per Person

When you go back to school, you're limited to choosing only one credit each year, even if you qualify for more than one. For example, if you have $14,000 in expenses, you can't use $10,000 for the Lifetime Learning Credit and $4,000 for the Tuition and Fees Deduction. Therefore, you should run the numbers to figure out which credit will save you the most.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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