For 2011, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the American opportunity credit (this chapter) and the lifetime learning credit ( chapter 3).

This chapter explains:

• Who can claim the American opportunity credit,
• What expenses qualify for the credit,
• Who is an eligible student,
• Who can claim a dependent's expenses,
• How to figure the credit,
• How to claim the credit, and
• When the credit must be repaid.

For the tax year, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student.

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Forty percent of the American opportunity credit may be refundable. This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you.

Your allowable American opportunity credit may be limited by the amount of your income. Also, the nonrefundable part of the credit may be limited by the amount of your tax.

See Table 2-1, Overview of the American Opportunity Credit, for the basics of this credit. The details are discussed in this chapter.

For each student, you can elect for any year only one of the credits. For example, if you elect to take the American opportunity credit for a child on your 2011 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2011.

If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and lifetime learning credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year.

There are several differences between these two credits. For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years, which includes any tax years you claimed the Hope credit for that student. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2011 near the end of this publication.

Maximum credit	Up to $2,500 credit per eligible student
Limit on modified adjusted gross income (MAGI)	$180,000 if married filling jointly; $90,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable	40% of credit may be refundable; the rest is nonrefundable
Number of years of postsecondary education	Available ONLY for the first 4 years of postsecondary education
Number of tax years credit available	Available ONLY for 4 tax years per eligible student (including any year(s) Hope credit was claimed)
Type of degree required	Student must be pursuing a degree or other recognized education credential
Number of courses	Student must be enrolled at least half time for at least one academic period that begins during the tax year
Felony drug conviction	As of the end of 2011, the student had not been convicted of a felony for possessing or distributing a controlled substance
Qualified expenses	Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance
Payments for academic periods	Payments made in 2011 for academic periods beginning in 2011 or beginning in the first 3 months of 2012

The following rules will help you determine if you are eligible to claim the American opportunity credit on your tax return.

Generally, you can claim the American opportunity credit if all three of the following requirements are met.

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

"Qualified education expenses" are defined later under Qualified Education Expenses. "Eligible students" are defined later under Who Is an Eligible Student. A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses.

You may find Figure 2-1, Can You Claim the American Opportunity Credit for 2011, later, helpful in determining if you can claim an American opportunity credit on your tax return.

You cannot claim the American opportunity credit for 2011 if any of the following apply.

• Your filing status is married filing separately.
• You are listed as a dependent on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses, later.
• Your modified adjusted gross income (MAGI) is $90,000 or more ($180,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit.
• You (or your spouse) were a nonresident alien for any part of 2011 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
• You claim the lifetime learning credit or a Tuition and Fees Deduction for the same student in 2011.