skip navigation

Search Help
Navigation Help

Tax Map Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

International
Tax Topic Index

Affordable Care Act
Tax Topic Index

FAQs
Forms
Publications
Tax Topics

Comments
About Tax Map

IRS.gov Website
Publication 970
taxmap/pubs/p970-004.htm#en_us_publink1000204337

What Expenses Qualify?(p11)

rule
The American opportunity credit is based on adjusted qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the credit is allowed for adjusted qualified education expenses paid in 2014 for an academic period beginning in 2014 or beginning in the first three months of 2015.
For example, if you paid $1,500 in December 2014 for qualified tuition for the spring 2015 semester beginning January 2015, you can use that $1,500 in figuring your 2014 credit.
taxmap/pubs/p970-004.htm#en_us_publink1000204338

Academic period.(p12)

rule
An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period.
taxmap/pubs/p970-004.htm#en_us_publink1000204339

Paid with borrowed funds.(p12)

rule
You can claim an American opportunity credit for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the American opportunity credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account.
taxmap/pubs/p970-004.htm#en_us_publink1000204340

Student withdraws from class(es).(p12)

rule
You can claim an American opportunity credit for qualified education expenses not refunded when a student withdraws.
taxmap/pubs/p970-004.htm#en_us_publink1000204341

Qualified Education Expenses(p12)

rule
For purposes of the American opportunity credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.
taxmap/pubs/p970-004.htm#en_us_publink1000204342

Eligible educational institution.(p12)

rule
An eligible educational institution is generally any accredited public, nonprofit, or proprietary (private) college, university, vocational school, or other postsecondary institution. Also, the institution must be eligible to participate in a student aid program administered by the Department of Education. Virtually all accredited postsecondary institutions meet this definition.
An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program administered by the Department of Education.
Deposit
The educational institution should be able to tell you if it is an eligible educational institution.
taxmap/pubs/p970-004.htm#en_us_publink1000204343

Related expenses.(p12)

rule
Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance.
However, expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution.
taxmap/pubs/p970-004.htm#en_us_publink1000298812

Prepaid expenses.(p12)

rule
Qualified education expenses paid in 2014 for an academic period that begins in the first three months of 2015 can be used in figuring an education credit for 2014 only. See Academic period, earlier. For example, if you pay $2,000 in December 2014 for qualified tuition for the 2015 winter quarter that begins in January 2015, you can use that $2,000 in figuring an education credit for 2014 only (if you meet all the other requirements).
EIC
You cannot use any amount you paid in 2013 or 2015 to figure the qualified education expenses you use to figure your 2014 education credit(s).
In the following examples, assume that each student is an eligible student at an eligible educational institution.
taxmap/pubs/p970-004.htm#en_us_publink1000204344

Example 1.(p12)

Jefferson is a sophomore in University V's degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified expense.
taxmap/pubs/p970-004.htm#en_us_publink1000204345

Example 2.(p12)

Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. William bought his books from a friend; Grace bought hers at College W's bookstore. Both are qualified education expenses for the American opportunity credit.
taxmap/pubs/p970-004.htm#en_us_publink1000204346

Example 3.(p12)

When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. No portion of the fee covers personal expenses. Although labeled as a student activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense.
taxmap/pubs/p970-004.htm#en_us_publink1000204348

No Double Benefit Allowed(p12)

rule
You cannot do any of the following.
taxmap/pubs/p970-004.htm#en_us_publink1000204352

Adjustments to Qualified Education Expenses(p13)

rule
For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.
taxmap/pubs/p970-004.htm#en_us_publink1000204353

Tax-free educational assistance.(p13)

rule
For tax-free educational assistance received in 2014, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period, earlier.
Some tax-free educational assistance received after 2014 may be treated as a refund of qualified education expenses paid in 2014. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2014 for qualified education expenses paid on behalf of a student in 2014 (or attributable to enrollment at an eligible educational institution during 2014).
If this tax-free educational assistance is received after 2014 but before you file your 2014 income tax return, see Refunds received after 2014 but before your income tax return is filed, later. If this tax-free educational assistance is received after 2014 and after you file your 2014 income tax return, see Refunds received after 2014 and after your income tax return is filed, later.
Tax-free educational assistance includes:
Generally, any scholarship or fellowship grant is treated as tax free. However, a scholarship or fellowship grant is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship grant is received) and either of the following is true.
Deposit
You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. For examples, see Coordination with Pell grants and other scholarships, later.
taxmap/pubs/p970-004.htm#en_us_publink1000293333

Refunds.(p13)

rule
A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Some tax-free educational assistance received after 2014 may be treated as a refund. See Tax-free educational assistance, earlier.
taxmap/pubs/p970-004.htm#en_us_publink1000293334
Refunds received in 2014.(p13)
For each student, figure the adjusted qualified education expenses for 2014 by adding all the qualified education expenses for 2014 and subtracting any refunds of those expenses received from the eligible educational institution during 2014.
taxmap/pubs/p970-004.htm#en_us_publink1000293335
Refunds received after 2014 but before your income tax return is filed.(p13)
If anyone receives a refund after 2014 of qualified education expenses paid on behalf of a student in 2014 and the refund is paid before you file an income tax return for 2014, the amount of qualified education expenses for 2014 is reduced by the amount of the refund.
taxmap/pubs/p970-004.htm#en_us_publink1000293336
Refunds received after 2014 and after your income tax return is filed.(p13)
If anyone receives a refund after 2014 of qualified education expenses paid on behalf of a student in 2014 and the refund is paid after you file an income tax return for 2014, you may need to repay some or all of the credit. See Credit recapture, next.
taxmap/pubs/p970-004.htm#en_us_publink1000297677

Credit recapture.(p13)

rule
If any tax-free educational assistance for the qualified education expenses paid in 2014, or any refund of your qualified education expenses paid in 2014, is received after you file your 2014 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2014 by reducing the expenses by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2014 and figure the amount by which your 2014 tax liability would have increased if you claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.
taxmap/pubs/p970-004.htm#en_us_publink1000297678
Example.(p14)
You paid $7,000 tuition and fees in August 2014, and your child began college in September 2014. You filed your 2014 tax return on February 17, 2015, and claimed an American opportunity credit of $2,500. After you filed your return, you received a refund of $4,000. You must refigure your 2014 American opportunity credit using $3,000 of qualified education expenses instead of $7,000. The refigured credit is $2,250. The increase to your tax liability is also $250. Include the difference of $250 as additional tax on your 2015 tax return. See the instructions for your 2015 income tax return to determine where to include this tax.
Deposit
If you pay qualified education expenses in both 2014 and 2015 for an academic period that begins in the first 3 months of 2015 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2015 instead of reducing your expenses for 2014.
taxmap/pubs/p970-004.htm#en_us_publink1000204362

Amounts that do not reduce qualified education expenses.(p14)

rule
Do not reduce qualified education expenses by amounts paid with funds the student receives as:
Do not reduce the qualified education expenses by any scholarship or fellowship grant reported as income on the student's tax return in the following situations.
taxmap/pubs/p970-004.htm#en_us_publink1000300225

Example 1.(p14)

Joan paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. The terms of the scholarship state that it can be used to pay any of Joan's college expenses.
University X applies the $2,000 scholarship against Joan's $8,000 total bill, and Joan pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Joan does not report any portion of the scholarship as income on her tax return.
In figuring the amount of either education credit (American opportunity or lifetime learning), Joan must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Joan is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship).
taxmap/pubs/p970-004.htm#en_us_publink1000300226

Example 2.(p14)

The facts are the same as in Example 1, except that Joan reports her entire scholarship as income on her tax return. Because Joan reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Joan is treated as having paid $3,000 in qualified education expenses.
taxmap/pubs/p970-004.htm#en_us_publink1000300227

Coordination with Pell grants and other scholarships.(p14)

rule
You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student's gross income. Your credit may increase only if the amount of the student's qualified education expenses minus the total amount of scholarships and fellowship grants is less than $4,000. If this situation applies, consider including some or all of the scholarship or fellowship grant in the student's income in order to treat the included amount as paying nonqualified expenses instead of qualified education expenses. Nonqualified expenses are expenses such as room and board that are not qualified education expenses such as tuition and related fees.
Scholarships and fellowship grants that the student includes in income do not reduce the student's qualified education expenses available to figure your American opportunity credit. Thus, including enough scholarship or fellowship grant in the student's income to report up to $4,000 in qualified education expenses for your American opportunity credit may increase the credit by enough to increase your tax refund or reduce the amount of tax you owe even considering any increased tax liability from the additional income. However, the increase in tax liability as well as the loss of other tax credits may be greater than the additional American opportunity credit and may cause your tax refund to decrease or the amount of tax you owe to increase. Your specific circumstances will determine what amount, if any, of scholarship or fellowship grant to include in income to maximize your tax refund or minimize the amount of tax you owe.
The scholarship or fellowship grant must be one that may qualify as a tax-free scholarship under the rules discussed in chapter 1. Also, the scholarship or fellowship grant must be one that may (by its terms) be used for nonqualified expenses. Finally, the amount of the scholarship or fellowship grant that is applied to nonqualified expenses cannot exceed the amount of the student’s actual nonqualified expenses that are paid in the tax year. This amount may differ from the student’s living expenses estimated by the student’s school in figuring the official cost of attendance under student aid rules.
The fact that the educational institution applies the scholarship or fellowship grant to qualified education expenses, such as tuition and related fees, does not prevent the student from choosing to apply certain scholarships or fellowship grants to the student’s actual nonqualified expenses. By making this choice (that is, by including the part of the scholarship or fellowship grant applied to the student’s nonqualified expenses in income), the student may increase taxable income and may be required to file a tax return. But, this allows payments made in cash, by check, by credit or debit card, or with borrowed funds such as a student loan to be applied to qualified education expenses.
taxmap/pubs/p970-004.htm#en_us_publink1000300228

Example 1—No scholarship.(p15)

Bill Pass, age 28 and unmarried, enrolled full-time in 2014 as a first-year student at a local college to earn a degree in law enforcement. This was his first year of postsecondary education. During 2014, he paid $5,600 for his qualified education expenses and $4,400 for his room and board for the fall 2014 semester. He and the college meet all the requirements for the American opportunity credit. Bill's adjusted gross income (AGI) and his MAGI, for purposes of figuring his credit, are $30,400. Bill claims the standard deduction of $6,200 and personal exemption of $3,950, resulting in taxable income of $20,250 and an income tax liability before credits of $2,588. Bill claims no credits other than the American opportunity credit. He figures his American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500 and a tax liability after credits of $88.
taxmap/pubs/p970-004.htm#en_us_publink1000300229

Example 2—Scholarship excluded from income.(p15)

The facts are the same as in Example 1—No scholarship, except that Bill was awarded a $5,600 scholarship. Under the terms of his scholarship, it may be used to pay any educational expenses, including room and board. If Bill excludes the scholarship from income, he will be deemed (for purposes of figuring his education credit) to have applied the scholarship to pay his tuition, required fees, and course materials. His adjusted qualified education expenses would be zero and he would not have an education credit. Therefore, Bill's tax liability after credits would be $2,588.
taxmap/pubs/p970-004.htm#en_us_publink1000300230

Example 3—Scholarship partially included in income.(p15)

The facts are the same as in Example 2—Scholarship excluded from income. If, unlike Example 2, Bill includes $4,000 of the scholarship in income, he will be deemed to have applied that amount to pay for room and board. The remaining $1,600 of the $5,600 scholarship would reduce his qualified education expenses and his adjusted qualified education expenses would be $4,000. Bill's AGI and MAGI would increase to $34,400, his taxable income would increase to $24,250, and his tax liability before credits would increase to $3,188. Based on his adjusted qualified education expenses of $4,000, Bill would be able to claim an American opportunity credit of $2,500 and his tax liability after credits would be $688.
taxmap/pubs/p970-004.htm#en_us_publink100025376

Example 4—Scholarship applied by the postsecondary school to tuition.(p15)

The facts are the same as in Example 3—Scholarship partially included in income, except the $5,600 scholarship is paid directly to the local college. The fact that the local college applies the scholarship to Bill's tuition and related fees does not prevent Bill from including $4,000 of the scholarship in income. As in Example 3, by doing so, he will be deemed to have applied $4,000 to pay for room and board. Bill would be able to claim the American opportunity credit of $2,500 and his tax liability after credits would be $688.
taxmap/pubs/p970-004.htm#en_us_publink100025377

Example 5—Student with a dependent child.(p15)

Jane Doe, age 28 and unmarried, enrolled full-time as a first-year student at a local technical college to get a certificate as a computer technician. This was her first year of postsecondary education. During 2014, she paid $6,000 for qualified education expenses. She and the college meet all the requirements for the American opportunity credit. Jane has a dependent child, age 10, who is a qualifying child for purposes of receiving the Earned Income Credit (EIC) and the child tax credit. Jane’s wages are $20,000. Jane withheld no income taxes on these wages and has no other income or adjustments. Jane was awarded a $5,500 scholarship. Under the terms of her scholarship, it may be used to pay tuition and any living expense, including child care and rent. Jane paid $10,000 in rent and child care expenses in 2014.
If Jane excludes the entire scholarship from income, she will be deemed to have applied the entire scholarship to pay qualified education expenses. Her AGI and MAGI would be $20,000. Her tax liability before any credits would be $303. Her qualified education expenses would be reduced to $500. She would be able to receive a $500 American opportunity credit ($200 refundable and $300 nonrefundable), a $1,000 child credit ($3 child credit and $997 additional child credit), and a $2,954 earned income credit. In total, she would be able to receive a tax refund of $4,151.
If Jane includes the entire scholarship in income, she will be deemed to have applied the entire scholarship to pay living expenses. Her qualified education expenses would be $6,000, and her AGI and MAGI would be $25,500. Her tax liability before any credits would be $853. She would be able to receive a $1,853 American opportunity credit ($1,000 refundable and $853 nonrefundable), a $1,000 child credit ($1,000 additional child credit), and a $2,075 earned income credit. In total, she would be able to receive a tax refund of $4,075.
If Jane includes $3,500 of the scholarship in income, she will be deemed to have applied $3,500 of the scholarship to pay living expenses, and $2,000 to pay qualified education expenses. Her qualified education expenses would be $4,000, and her AGI and MAGI would be $23,500. Her tax liability before any credits would be $653. She would be able to receive a $1,653 American opportunity credit ($1,000 refundable and $653 nonrefundable), a $1,000 child credit ($1,000 additional child credit), and a $2,395 earned income credit. In total, she would be able to receive a tax refund of $4,395.
If Jane includes $1,500 of the scholarship in income, she will be deemed to have applied $1,500 of the scholarship to pay living expenses, and $4,000 to pay qualified education expenses. Her qualified education expenses would be $2,000, and her AGI and MAGI would be $21,500. Her tax liability before any credits would be $453. She would be able to receive a $1,253 American opportunity credit ($800 refundable and $453 nonrefundable), a $1,000 child credit ($1,000 additional child credit), and a $2,714 earned income credit. In total, she would be able to receive a tax refund of $4,514. This is the highest tax refund among these scenarios.
Note. Whether you will benefit from applying a scholarship or fellowship grant to nonqualified expenses will depend on the amount of the student’s qualified education expenses, the amount of the scholarship or fellowship grant, and whether the scholarship or fellowship grant may (by its terms) be used for nonqualified expenses. Any benefit will also depend on the student’s federal and state marginal tax rates as well as any federal and state tax credits the student claims. Before deciding, look at the total amount of your federal and state tax refunds or taxes owed and, if the student is your dependent, the student’s tax refunds or taxes owed. For example, if you are the student and you also claim the earned income credit, choosing to apply a scholarship or fellowship grant to nonqualified expenses by including the amount in your income may benefit you if the increase to your American opportunity credit is more than the decrease to your earned income credit. Many students who have no children and who are eligible to claim the earned income credit will maximize the benefit of claiming both the American opportunity credit and the earned income credit if they have $4,000 in qualified tuition and related expenses, even if this means income from the scholarship or fellowship grant reduces the amount of the earned income credit they are eligible to claim. In the case of students who have a qualifying child and who claim the earned income credit with respect to that child, many can maximize the benefit of claiming both the American opportunity credit and the earned income credit if they have at least $2,000 in qualified tuition and related expenses, even if this means income from the scholarship or fellowship grant reduces the amount of the earned income credit they are eligible to claim.
taxmap/pubs/p970-004.htm#en_us_publink1000204365

Expenses That Do Not Qualify(p16)

rule
Qualified education expenses do not include amounts paid for: This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
taxmap/pubs/p970-004.htm#en_us_publink1000204367

Sports, games, hobbies, and noncredit courses.(p16)

rule
Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify.
taxmap/pubs/p970-004.htm#en_us_publink1000204368

Comprehensive or bundled fees.(p16)

rule
Some eligible educational institutions combine all of their fees for an academic period into one amount. If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed earlier, contact the institution. The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. See Figuring the Credit, later, for more information about Form 1098-T.