Rising costs of higher education are a significant concern for both parents and students. Fortunately, there are 2024 education tax credits that can help alleviate some of this financial burden. The two main credits available to taxpayers are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
Overview of the 2024 Education Tax Credits
The AOTC allows eligible students to claim up to $2,500 in credit, with $1,000 of that amount being refundable. Specifically, this credit covers 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000.
To qualify for the AOTC, students must meet the following criteria:
- Pursue a college degree or another approved course of education.
- Be enrolled at least half-time in an approved educational institution for at least one academic period during the tax year.
- Have completed less than four years of higher education at the start of the tax year.
- Not have had the AOTC or the former Hope credit claimed on their behalf for more than four tax years.
- Have no drug-related felony convictions at the end of the tax year.
The AOTC can be applied to qualified education expenses, including course materials, books, tuition, fees, and necessary equipment. However, expenses such as room and transportation do not qualify under this credit.
The Lifetime Learning Credit (LLC) is another option. This credit allows for a maximum claim of $2,000, which is 20% of qualified education expenses up to $10,000. Unlike the AOTC, the LLC is entirely non-refundable, meaning any unused portion cannot be received as a tax refund.
To be eligible for the LLC, students must meet the following conditions:
- Be enrolled in or taking classes at a qualified educational institution.
- Be pursuing a degree, taking other courses, or participating in classes to improve job skills.
- Be enrolled for at least one academic period during the tax year.
The Importance of 2024 Education Tax Credits
These credits are especially important now, as they help reduce the financial strain associated with higher education. They can be claimed by students paying for their own education expenses, provided they are not claimed as a dependent on another person’s tax return.
The cost of higher education has risen significantly over the years. For example, the average cost of higher education increased from $11,411 in 1964 to $26,903 in 2022, according to the U.S. Department of Education’s Institute of Education Sciences. By 2023, the average cost of attending a four-year college reached $36,436, according to the Education Data Initiative.
While both the AOTC and LLC provide significant financial relief, it’s important to note that a person cannot claim both credits on the same tax return for the same student.