American Opportunity Credit

• The American opportunity credit is available to students seeking a degree, enrolled at least half time and in the first four years of post-secondary education. Qualified expenses for all education-related credits and deductions include tuition and mandatory fees. The value of the American opportunity credit equals all of your first $2,000 in qualified education expenses and 25 percent of the next $2,000, making the largest credit $2,500 as of 2010. However, you cannot claim the American opportunity credit if your modified adjusted gross income is more than $90,000 if a single filer or $180,000 if a joint filer. You use Form 8863 to figure your credit.
  
  

Lifetime Learning Credit

• The lifetime learning credit is another tax credit for higher education costs. However, you do not have to be a degree-seeking student nor is there a limit on how many years the credit can be claimed. For example, a law student or a student taking continuing education classes, but not necessarily going for a degree could claim the credit. The value of the credit equals 20 percent of up to $10,000 of qualifying expenses. You use Form 8863 to figure your credit. You are ineligible to claim the lifetime learning credit if your modified adjusted gross income exceeds $60,000 if a single filer or $120,000 if a joint filer.
  
  

Tuition And Fees Deduction

• The tuition and fees deduction allows you to deduct up to $4,000 of qualified educational expenses from your income taxes. This deduction is an adjustment to income, which means you can claim it even if you do not itemize. To claim this deduction, you must complete IRS Form 8917 to determine the value of your deduction. This deduction is then reported on Form 1040 or Form 1040A. As of 2010, you cannot claim the deduction if your modified adjusted gross income exceeds $80,000 if a single filer or $160,000 if married filing jointly.
  
  

Considerations

• The IRS allows you to claim only one of the three aforementioned tax deductions and credits each year. For example, if you claim the lifetime learning credit, you are ineligible to claim the American opportunity credit or the tuition and fees deduction. Typically, the American opportunity credit will offer the best tax benefits, but you should check the value of each credit to make sure. The tuition and fees deduction is usually only beneficial for people who do not qualify for the two credits because of a higher income for the year.