26 U.S.C. § 25A — American Opportunity and Lifetime Learning credits

(a) Allowance of credit: You get a tax credit equal to the American Opportunity Tax Credit plus the Lifetime Learning Credit. (b) American Opportunity Tax Credit (1) Per student credit: For each eligible student, the credit equals 100% of the first $2,000 of qualified tuition and expenses you paid, plus 25% of the next $2,000 (the amount from $2,000 to $4,000). The most you can get per student is $2,500. (2) Limitations: (A) You can only claim this credit for a given student for 4 taxable years total, ever. (B) It's only allowed for a year if the student is an "eligible student" for at least one academic period starting that year. (C) You can't claim it if the student already finished 4 years of postsecondary education before the year started. (D) You can't claim it if the student was convicted of a federal or state felony for possessing or distributing a controlled substance by the end of the tax year covering that academic period. (3) Eligible student: A student is "eligible" for a period if they meet a specific Higher Education Act requirement (tied to federal student-aid eligibility) and carry at least half of a normal full-time course load. (4) Restrictions for taxpayers who wrongly claimed the credit before: (A) If a final determination found your past claim was due to fraud, you can't claim this credit for 10 years after that determination. If it was due to reckless or intentional disregard of the rules (but not fraud), you're barred for 2 years. (B) If the IRS denied a past claim through its deficiency procedures, you can't claim it again later unless you give the Secretary the information needed to prove you qualify. (c) Lifetime Learning Credit (1) Per taxpayer credit: This credit equals 20% of up to $10,000 of qualified tuition and expenses you paid for the year — a maximum of $2,000, and it's per taxpayer, not per student. (2) Special rules: (A) You can't count expenses toward this credit if you already used them for the American Opportunity credit. (B) Expenses also include the cost of a course taken to gain or improve job skills at an eligible school. (d) Income limits: Both credits shrink based on your modified adjusted gross income (MAGI). (1) Take the amount your MAGI exceeds $80,000 ($160,000 if filing jointly). Divide that by $10,000 ($20,000 if joint). Multiply each credit by that fraction, then subtract the result from the credit — but the credit never drops below zero. (2) "Modified adjusted gross income" means your regular adjusted gross income, plus any income you excluded under the rules for Puerto Rico, Guam/American Samoa, or bona fide residents of U.S. possessions (sections 911, 931, and 933). (e) Election not to have section apply: You can choose not to claim this credit for a given individual's expenses in a year. (f) Definitions (1) Qualified tuition and related expenses: (A) Tuition and fees required to enroll or attend an eligible school, for you, your spouse, or a dependent you can claim. (B) Doesn't include costs for sports, games, or hobbies, unless the course is part of a degree program. (C) Doesn't include student activity fees, athletic fees, insurance, or other costs unrelated to academics. (D) For the American Opportunity Credit only, "tuition and fees" also includes required course materials. (2) Eligible educational institution: A school that's covered under a specific Higher Education Act provision and can take part in federal student aid (Title IV) programs. (g) Special rules (1) Identification requirement: (A) You must include your Social Security number on your return, and if you're claiming the credit for someone besides yourself or your spouse, that person's name and Social Security number too. (B) For the American Opportunity Credit, you must also include the school's employer identification number. (C) "Social security number" is defined elsewhere in the tax code (section 24(h)(7)). (2) Adjustment for scholarships: Before applying the credit and income limits, you must subtract from your expenses any amount paid for the student that's a tax-free scholarship, certain veterans' education benefits, or another tax-free education payment (other than a gift, bequest, or inheritance). (3) Expenses paid by a dependent: If someone else can claim you as a dependent, you get no credit yourself. Expenses you paid count as paid by that other taxpayer instead, and any tuition statement you received counts as received by them. (4) Prepayments: If you pay in one year for an academic period that starts in the first three months of the next year, you can treat that payment as made in the earlier year. (5) No double benefit: You can't claim this credit for an expense you also deducted elsewhere on your return. (6) Married filing separately: If you're married, you can only claim this credit if you and your spouse file a joint return. (7) Nonresident aliens: If you're a nonresident alien for part of the year, you can only claim this credit if you elected to be treated as a resident alien under section 6013(g) or (h). (8) Payee statement requirement: You generally must have received a tuition statement under section 6050S(d), containing the required information, before you can claim the credit. (h) [Repealed.] (i) Refundable portion: 40% of the American Opportunity Tax Credit part of your credit (figured after the income-limit reduction) is treated as refundable, meaning you can receive it even if it's more than you owe in tax. This doesn't apply if you're a child subject to the "kiddie tax" rules under section 1(g). (j) Regulations: The Secretary can issue rules to carry out this section, including rules to recapture (take back) part of the credit if you later get a refund of expenses that were used to figure it.