Lifetime learning credit. 25A(c)), for a maximum credit of $2,000 for any taxpayer; therefore, a taxpayer with multiple qualifying children is still limited to $2,000. As is the case for the American opportunity credit, eligible expenses do not include room and board, and, unlike with the American opportunity credit, they do not include books and other course materials. The lifetime learning credit is not limited to the first four years of college, so it is available for graduate school. The lifetime learning credit phases out for single taxpayers with MAGI between $52,000 and $62,000 for 2012 ($51,000 and $61,000 for 2011) and for married taxpayers between $104,000 and $124,000 ($102,000 and $122,000 for 2011).

A $2,500 credit from the American opportunity credit is more beneficial than a $4,000 tuition and fee deduction at any current tax rate. The income phaseouts are also higher for the American opportunity credit. For the first easy payday loans North Carolina online four years a child attends a regular degree-granting college or university, parents are better off claiming the American opportunity credit if they qualify.

Exhibit 1 shows a comparison for a family of four with two children in college. The parents have a combined salary of $100,000 and pay $4,000 of tuition and $1,000 for course-required books for each of their children, who are 20 and 21 years old and can be claimed as dependents on the parents‘ joint tax return. The total qualified educational expenses for the American opportunity credit are $5,000 for each child. This results in a $2,500 credit for each child ($5,000 total credit).Continue reading→