Describe the differences between the American Opportunity Tax credit and the Lifetime Learning credit.
What will be an ideal response?
The American Opportunity Tax Credit (AOTC) is available for the first four years of college. It is calculated as 100% of the first $2,000 of tuition, fees and textbooks and 25% of the next $2,000, for a maximum of $2,500. Student activity fees, room and board are not eligible expenses. An eligible student must carry at least one-half of the normal full-time courseload. The phase-out range for taxpayers married filing joint returns is from $160,000 to $180,000; for other taxpayers, it is from $80,000 to $90,000. It is available for each eligible child.
The Lifetime Learning credit is 20% of eligible tuition and fees up to $10,000, resulting in a maximum annual credit of $2,000. The definition of qualifying expenses is more limited than the AOTC since it does not include textbooks. It does not require that a student be enrolled on at least a half-time basis and is available for an unlimited number of years. The Lifetime Learning Credit is available for continuing education that is not part of a degree program. The Lifetime Learning Credit limitation for eligible expenses is on a per taxpayer basis, whereas the AOTC limitations are on a per student basis. The phase-out range for married taxpayers filing joint returns is from $114,000 to $134,000; for other taxpayers it is from $57,000 to $67,000.
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