The American Opportunity Credit is restricted to the first four years of college. It is not available to graduate students or those in a five-year program.
For these students there is the Lifetime Learning Credit or the above-the-line deduction for qualified tuition and fees, depending on the level of the applicable Adjusted Gross Income.
The Lifetime Learning Credit is 20% of up to $10,000 of qualified tuition and fees. The expenses eligible for the credit include the cost of books, supplies and equipment if paid to the school as a condition of enrollment or attendance.
Unlike the American Opportunity and Hope Credits, the $2,000 maximum is per return and not per student. You can have three dependents in graduate school, each paying $12,000 in tuition, but the maximum credit you can claim is $2,000. And, also unlike the AOC, the credit is limited to actual tax liability. None of the Lifetime Learning Credit is "refundable."
This credit is not restricted to education leading to a degree or certificate, and there is no "workload" requirement. It is available to undergraduate and graduate students as well as those attending a course or workshop to acquire or improve job skills.
The Lifetime Learning Credit is phased-out as AGI goes from $50,000-$60,000 for single, head of household and qualified widow(er) filers, and from $100,000-$120,000 for married couples filing a joint return.
Couples filing separate returns cannot claim the Lifetime Learning Credit, the American Opportunity Credit or the Hope Credit.
New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.