What happened to the tuition and fees deduction
The tuition and fees deduction let filers deduct up to $4,000 in qualified tuition and related expenses directly from their taxable income. It expired after the 2020 tax year, and no extension has passed since. See IRS Publication 970, Tax Benefits for Education, for the full history.
AOTC and LLC tax credits
The expansion of two education tax credits replaced the tuition and fees deduction:
- American Opportunity Tax Credit: The AOTC allows a credit of up to $2500 for each of the first four years of college. It is subject to income limitations and has a number of other qualifications that must be met.
- Lifetime Learning Credit: The LLC allows you to claim a credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for each student.
| Credit | Max value | Refundable? |
|---|---|---|
| AOTC | $2,500 per student | Up to 40% |
| LLC | $2,000 per return | No |
Source: Internal Revenue Service
The AOTC American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) reduce the amount of income tax you may have to pay. Only one of these credits may be elected for any tax year for each student, even though the student may be eligible for both credits, the taxpayer must choose one or the other.
Generally, the AOTC is the more favorable credit if the student is in their first four years of college, while the LLC is often most beneficial for grad school, part-time courses, or job-skills classes, since it has no year limit. Learn more about how these two credits compare.
Other ways to potentially deduct tuition
If you’re self-employed and the coursework maintains or improves skills you already use in your business, you may be able to deduct it as an ordinary business expense. A taxpayer using money withdrawn from a 529 plan for educational expenses can’t use those same expenses to claim an AOTC or LLC education credit on the tax return. This is because the expenses were paid with tax-free funds.
How to claim an AOTC or LLC education tax credit on your return
- Gather your Form 1098-T from the school.
- Check your modified adjusted gross income (MAGI) against the AOTC/LLC income limits.
- Complete Form 8863 and attach it to your Form 1040.
