American Opportunity Credit
You can claim the American Opportunity Tax Credit if you're an undergraduate and have not completed the first four years of post-secondary education as of the beginning of the year. You'll need to be in a program at a recognized post-secondary educational institution working toward a degree or certificate. According to IRS.gov, you need to have at least half the full-time workload for at least one of your academic periods. Also, you don't qualify if you've been convicted of a felony drug offense.
This credit is a modified version of the Hope Credit. The updated version allows required course materials — like books, supplies, and equipment) — as qualifying expenses, allows the credit to be claimed for four years instead of two, and broadens the range to include taxpayers with higher incomes.
This would allow a maximum annual credit of $2,500 of the cost of tuition, fees, and course materials paid during the taxable year for each student. According to IRS.gov, the credit is 40% refundable up to $1,000, which means you'd get money back even if you don't owe taxes.
You're eligible to claim this credit if your modified adjusted gross income is $80,000 or less, or $160,000 or less if you're filing jointly.
Lifetime Learning Credit
The Lifetime Learning Credit allows you to claim a credit of up to $2,000 on qualified education expenses. Unlike the American Opportunity Credit, this is nonrefundable. You won't get money returned to you, but it can reduce what you owe.
Unlike American Opportunity, the Lifetime Learning Credit is good for postsecondary education and any courses to acquire or improve job skills. Plus, a felony drug conviction doesn't make you ineligible.
You're eligible for this credit if you've paid for qualified education expenses and if you're considered an eligible student. For this credit, the amount of your Lifetime Learning Credit is gradually reduced and eventually phased out if your modified adjusted gross income (MAGI) is between $59,000 and $69,000 if you're single or between $118,000 and $138,000 if you're filing jointly. You cannot claim this credit if your MAGI is $69,000 filing independently or $138,000 filing jointly.
You aren't eligible for this credit if you're a dependent or you're married filing separately.
You can't claim both the Lifetime Learning and American Opportunity credits. You also can't claim one of these credits along with deducting your tuition and fees.
There's no limit to the number of years you can claim this credit, unlike the American Opportunity Credit, which doesn't allow you to take the credit on the same student for more than four years.