IRS Education Tax Credits
The IRS has two education-related tax credits that apply for 2010 income tax returns: the Lifetime Learning Credit and the American Opportunity Credit. These credits reduce the taxpayer's income tax obligation and do not require taxpayers to itemize their deductions to qualify. Taxpayers may apply these credits to qualified education costs for a new line of work, however, the IRS forbids taxpayers to claim both credits in a single tax year.
The American Opportunity Credit, which modifies the Hope Credit and makes it more widely available, was created under the American Recovery and Reinvestment Act (ARRA), commonly known as the stimulus plan. Unlike Hope Credits, which applied only to the first two years of an undergraduate program, American Opportunity Credits apply to up to four years of post-secondary enrollment.
For 2010 tax returns, single taxpayers earning up to $80,000 and married taxpayers filing jointly earning up to $160,000 qualify for the full credit. The credit covers 100 percent of the first $2,000 of qualifying expenses and 25 percent of the next $2,000 of qualifying expenses for students enrolled at least half-time in a degree-granting program.
The Lifetime Learning Credit provides a credit of up to $2,000 per year for qualified educational expenses with no limit to the number of years a taxpayer may claim the credit. Taxpayers may use Lifetime Learning Credits to pursue both undergraduate and graduate education. Students may also apply the credit for a single class and need not pursue a degree to qualify.