American Opportunity and Lifetime Learning Tax Credits
American Opportunity Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You can't get a refund for the Hope credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
Your family may claim a tax credit up to $1,500 for each eligible dependent for up to two tax years. In other words, your family may claim up to 100% of the first $1,000 of eligible expenses and 50% of the next $1,000 for a maximum credit of $1,500.
The exact amount of the credit depends on a number of factors. The tax law says an eligible student must be enrolled at least half-time in an eligible program leading to a degree or certificate at an eligible school during the calendar year AND must not have completed the first two years of undergraduate study. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. For detailed information, please visit: Parent and Student Guide to Federal Tax Benefits for Tuition and Fees.
Understanding the Lifetime Learning Tax Credit
The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does. You can't get a refund for the Lifetime Learning credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
Your family may claim a tax credit up to $1,000 per tax year (until January 1, 2003) and up to $2,000 (after that date) for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years.
The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (e.g., $1,000 per family) rather than based on the number of dependents in your family like the Hope credit.
For detailed information, please visit: Parent and Student Guide to Federal Tax Benefits for Tuition and Fees. (You will need to scroll down the page.)