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IRS.gov Website
Publication 970
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Appendices(p80)

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The following appendices are provided to help you claim the education benefits that will give you the lowest tax.
  1. Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2014.
  2. Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. It is intended only as a guide. Look in this publication for more complete information.
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Appendix A. Illustrated Example of Education Credits(p80)

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Dave and Valerie Jones are married and on their 2014 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Their modified adjusted gross income (MAGI) on Form 1040, line 38, is $110,000. Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,003.
Sean enrolled as a full-time graduate student in August 2014 at California State College. He graduated with his bachelor's degree in 2013 and did not attend school from January 2014 through July 2014. His parents claimed the Hope scholarship credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012.
Carey enrolled full time as a freshman at the same college in January 2014 to begin working on her bachelor's degree.
In 2014, Dave and Valerie paid $7,000 in tuition for Sean and $8,000 in tuition and $500 for mandatory course materials, not purchased from the college, for Carey. Carey received a $2,000 scholarship.
California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses residence. The $2,000 scholarship that Carey received is reported in box 5 of her Form 1098-T. California State College reports amounts billed in 2014 instead of amounts paid during 2014. In completing Form 8863, the Joneses should include actual adjusted qualified education expenses paid, or deemed to have been paid, which may be different from what is reported on Form 1098-T. Therefore, the Joneses use the amounts they paid for tuition and mandatory course materials. Because the scholarship Carey received was applied to tuition (a qualified expense), they do not include that in the amount they paid for qualified tuition expenses. Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2014.
Dave and Valerie figure their education credits by completing Form 8863. They begin Form 8863 on page 2 before completing Part I on page 1. Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey.
The Joneses decide to complete Part III for Carey first, as shown later. They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1.
The Joneses complete a separate Part III for their son Sean. They check the "Yes" box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. They figure their line 31 adjusted qualified education expenses for Sean to be $7,000.
Once they have completed Part III for each student, they figure their credits. The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. They enter the amount from line 8, $1,000, on line 68 of their Form 1040.
The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2014 to be $1,400 (line 12). They cannot claim the full amount because their MAGI of $110,000 is greater than $108,000. They enter the reduced amount of $1,260 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. The $1,260 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,760. The Joneses enter $1,003 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 47 of their Form 1040 (which is $1,003) or the $2,760 on line 3 of the Credit Limit Worksheet. They enter $1,003 on Form 8863, Part II, line 19, and on Form 1040, line 50.
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Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) for Carey Jones
Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions)
1.Total qualified education expenses paid for or on behalf of the student in 2014 for the academic period10,500
2.Less adjustments: 
 a.Tax-free educational assistance received in 2014 allocable to the academic period 2,000 
 b.Tax-free educational assistance received in 2015 (and before you file your 2014 tax return) allocable to the academic period 0 
 c.Refunds of qualified education expenses paid in 2014 if the refund is received in 2014 or in 2015 before you file your 2014 tax return  0 
3.Total adjustments (add lines 2a, 2b, and 2c)2,000
4.Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0-8,500


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Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) for Sean Jones
Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions)
1.Total qualified education expenses paid for or on behalf of the student in 2014 for the academic period7,000
2.Less adjustments: 
 a.Tax-free educational assistance received in 2014 allocable to the academic period 0 
 b.Tax-free educational assistance received in 2015 (and before you file your 2014 tax return) allocable to the academic period 0 
 c.Refunds of qualified education expenses paid in 2014 if the refund is received in 2014 or in 2015 before you file your 2014 tax return  0 
3.Total adjustments (add lines 2a, 2b, and 2c)0
4.Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0-7,000
Credit Limit Worksheet (Form 8863 instructions)
Complete this worksheet to figure the amount to enter on line 19.
1.Enter the amount from Form 8863, line 181.1,260
2.Enter the amount from Form 8863, line 92.1,500
3.Add lines 1 and 23.2,760
4.Enter the amount from:
  • Form 1040, line 47; or
  • Form 1040A, line 30
4.1,003
5.Enter the amount from either:
  • Form 1040, lines 48 and 49, and the amount from Schedule R, line 22; or
  • Form 1040A, lines 31 and 32
5.0
6.Subtract line 5 from line 46.1,003
7.Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7.1,003
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Appendix B. Highlights of Education Tax Benefits for Tax Year 2014

This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and details. Do not rely on this chart alone.

Caution: You generally cannot claim more than one benefit for the same education expense.
 Scholarships,
Fellowship Grants,
Grants, and
Tuition
Reductions
American Opportunity CreditLifetime Learning CreditStudent Loan Interest DeductionTuition and Fees DeductionCoverdell ESAQualified Tuition Program (QTP)Education Exception to Additional Tax on Early IRA DistributionsEducation Savings Bond ProgramEmployer-
Provided Educational Assistance
Business Deduction for Work-Related Education
What is your
benefit?
Amounts received may not be taxable

Credits can reduce the amount of tax you have to pay.
    
40% of the credit may be refundable
(limited to $1,000 per student).
Credits can reduce amount of tax you must payCan deduct interest paidCan deduct expensesEarnings not
taxed
Earnings not taxedNo 10%
additional tax on early distribution
Interest not taxedEmployer benefits not taxedCan deduct expenses
What is the annual limit?None$2,500 credit per student$2,000 credit per tax return



$2,500 deduction$4,000 deduction$2,000 contribution per beneficiaryNoneAmount of qualified
education expenses
Amount of qualified
education expenses
$5,250 exclusionAmount of qualifying work-related education expenses
What expenses
qualify besides
tuition and required enrollment fees?
Course-related expenses such as fees, books, supplies, and equipmentCourse-related books, supplies, and equipmentAmounts paid for required books, etc., that must be paid to the educational institution, etc., are required feesBooks
Supplies
Equipment

Room & board

Transportation

Other necessary expenses
NoneBooks
Supplies
Equipment

Expenses for special needs services

Payments to QTP

Higher education:
Room & board if
at least half-time
 student

Elem/sec (K–12) education:
 Tutoring
 Room & board
 Uniforms
 Transportation
 Computer
 access
 Supplementary
 expenses
Books
Supplies
Equipment

Room & board if
at least half-time student

Expenses for special needs services
Books
Supplies
Equipment

Room & board if
at least half-time student

Expenses for special needs services
Payments to Coverdell ESA

Payments to QTP
Books
Supplies
Equipment
Transportation

Travel

Other necessary expenses
 Scholarships,
Fellowship Grants,
Grants, and
Tuition
Reductions
American Opportunity CreditLifetime Learning CreditStudent Loan Interest DeductionTuition and Fees DeductionCoverdell ESAQualified Tuition Program (QTP)Education Exception to Additional Tax on Early IRA DistributionsEducation Savings Bond ProgramEmployer-
Provided Educational Assistance
Business Deduction for Work-Related Education
What education qualifies?Undergraduate & graduate

K–12
Undergraduate & graduateUndergraduate & graduate

Courses to acquire or improve job skills


Undergraduate & graduateUndergraduate & graduateUndergraduate & graduate

K–12
Undergraduate & graduateUndergraduate & graduateUndergraduate & graduateUndergraduate & graduateRequired by employer or law to keep present job, salary, status

Maintain or improve job skills
What are some of the other
conditions that
apply?
Must be in degree or vocational program

Payment of tuition and required fees must be allowed under the grant
Can be claimed for only 4 tax years (which includes years Hope scholarship credit claimed)

Must be enrolled at least half-time in degree program

No felony drug conviction(s)

Must not have completed first 4 years of postsecondary education before end of preceding tax year.
No other conditionsMust have been at least half-time
student in degree program
Cannot claim both deduction & education credit for same student in same yearAssets must be distributed at age 30 unless special
needs beneficiary
No other conditionsNo other conditionsApplies only to qualified series
EE bonds issued after 1989 or series I bonds
No other conditionsCannot be to
meet minimum educational requirements of present trade/business

Cannot qualify
you for new trade/business

In what income
range do benefits
phase out?
No phaseout$80,000 – $90,000

$160,000 – $180,000 for joint returns
$54,000 – $64,000

$108,000 – $128,000 for joint returns
$65,000 – $80,000

$130,000 –
$160,000 for
joint returns
$60,000 – $80,000

$130,000 –
$160,000 for
joint returns
$95,000 – $110,000

$190,000 – $220,000 for
joint returns
No phaseoutNo phaseout No phaseoutNo phaseout
Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses.