American Opportunity vs Lifetime Learning — which credit, how much, with phaseouts
| AOTC | Lifetime Learning |
|---|
College costs come with two federal credits that pay real money back — the American Opportunity Credit (up to $2,500 per student, 40% refundable, undergrads) and the Lifetime Learning Credit (up to $2,000 per return, everyone from grad students to career-changers taking one course). They share an income phaseout and can't double-dip on the same expenses, and their coordination with 529 plans and scholarships is where families leave money behind. This estimator computes both and flags the strategy.
| AOTC | Lifetime Learning | |
|---|---|---|
| Maximum | $2,500 per student, per year | $2,000 per return (all students combined) |
| Formula | 100% of first $2,000 + 25% of next $2,000 | 20% of up to $10,000 |
| Who | Degree-seeking, half-time+, first 4 years, no felony drug conviction | Anyone — grad school, certificates, single courses |
| Refundable | 40% (up to $1,000 with zero tax owed) | No |
| Phaseout (both) | MAGI $80,000–90,000 single / $160,000–180,000 married | |
When a student qualifies for both, AOTC nearly always wins ($2,500 on just $4,000 of expenses vs $2,000 on $10,000). LLC is the workhorse for everyone AOTC excludes.
In: tuition, required fees, and (AOTC only) books/supplies from any source. Out: room & board, transport, insurance, optional fees — for the credits, that is; 529 funds may cover room & board tax-free, which is exactly why the coordination above works. Your Form 1098-T from the school reports payments, but it's famously imprecise — your own records of amounts paid govern.
AOTC: yes — it's per student, so two undergrads = up to $5,000. LLC: no — $2,000 per RETURN total. Mixed households claim AOTC per eligible undergrad plus LLC once for others (never both for the same student).
The credits are gone for you, but possibly not for the household: if you forgo claiming the student as a dependent, they may claim the credit against their own tax liability (the refundable AOTC portion stays off-limits to most dependents-in-fact). Run it both ways senior year.
Loan-funded tuition counts in the year the school is paid (the loan is your money). Loan REPAYMENT later doesn't — but up to $2,500/yr of student-loan interest is separately deductible above-the-line (see the Student Loan tools).
Employer educational assistance is tax-free up to $5,250/yr; amounts above are wages. LLC can apply to eligible expenses you paid beyond the employer's tax-free portion.
Schools report payments received (Box 1) and scholarships (Box 5) — but timing quirks make it unreliable; the IRS matches against it, yet your payment records control the actual claim. Keep bursar statements.
AOTC requires at least half-time in a degree program; below that, LLC picks up everything from one course upward. 'Half-time' is the school's own definition, on the 1098-T.
Yes — every figure computes locally in your browser.
Four years of correctly-claimed AOTC is $10,000 per child — and the first-$4,000-out-of-pocket rule is the difference between claiming it and accidentally donating it to the 529. Set the payment strategy before the bursar's autumn deadline, not at tax time.