Overview of IRS Education Tax Credits and Deductions

There’s one time of year many of us dread: tax time. When filing your tax returns, you may want to take advantage of all the credits and deductions available to you, enabling you to pay less or maybe even get a refund.

Here is an overview of some of the education tax benefits offered by the IRS as of August 2024, potentially giving you a student tax break.

Disclaimer: The information presented is not tax advice. Consult with a tax professional to learn the education tax credits available to you based on your situation and needs.

American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit¹ is one of two education tax credits offered by the IRS. It enables students to claim up to $2,500 for qualified expenses, which include:

• Tuition
• Enrollment fees
• Course materials (books, supplies, equipment)

To qualify for the AOTC, students must be enrolled in school at least half-time and have a modified adjusted gross income of $90,000 or less for a single income or $180,000 for a married couple (as of the 2023 tax year). This education credit is only available during a student’s first four years of postsecondary education. Additionally, the student must be pursuing a degree or other recognized credential and cannot be previously convicted of a felony for controlled substance possession or distribution.

Lifetime Learning Credit

The second higher education tax credit offered by the IRS is the Lifetime Learning Credit.² This credit is up to $2,000 per tax return and, unlike the AOTC, is available for students during all years of postsecondary education versus being limited to the first four. It’s also different in that the program you’re in doesn’t have to lead to a degree or other recognized credential, and you’re not disqualified if you have a felony drug conviction.

Qualified expenses under this education tax credit include:

• Tuition
• Enrollment or attendance fees
• Course materials (books, supplies, equipment)

To qualify for the Lifetime Learning Credit, your modified adjusted gross income cannot be greater than $90,000 as a single person or $180,000 for individuals who are married and filing jointly (as of the 2023 tax year). It should also be noted that you can’t use this credit and the American Opportunity Tax Credit at the same time.

Student Loan Interest Deduction

Another education tax benefit you may qualify to receive is the IRS student loan interest deduction.³ Tax deductions are different than tax credits. While a tax credit reduces the amount you pay in taxes, a tax deduction reduces the amount of income taxed.

The student loan interest deduction reduces the amount of income that is subject to tax by up to $2,500 for interest paid on a student loan throughout the year. This includes interest that was paid voluntarily as well as that paid by obligation as terms of the loan.

With this deduction, the loan must have been for qualified education expenses, such as:

• Tuition
• Fees
• Room and board
• Course materials (books, supplies, equipment)
• Other necessary expenses, like transportation

To qualify, you must be enrolled at least half-time in a program that provides a degree or other educational credential and your modified adjusted gross income must be less than $90,000 for a single income or $185,000 for a married couple filing jointly (as of the 2023 tax year). Additionally, you can’t claim this deduction for a loan you received from someone you’re related to (such as a parent or grandparent) or that is provided as part of a qualified employer plan.

Remember to talk with a tax professional if you want to take advantage of an education tax credit or student tax break. They can help you determine which ones you qualify for based on your situation.