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11810: 1040 - American Opportunity and Lifetime Learning Credits


1040 Individual Generally

Where do I enter education credits for taxpayers and dependents in Drake Tax?

 

This article discusses education credits. For information about the tuition and fees deduction, see Related Links below.

The Lifetime Learning Credit and American Opportunity Credits can be taken only for a qualifying dependent, taxpayer, or spouse. There are limitations for each of these credits, see Related Links for details. Enter Lifetime Learning and American Opportunity credits on the 8863 screen; education credits appear on Form 8863 in view mode.

Credit Facts and Comparison

The credit is based on the amount of adjusted qualified education expenses paid for the student in 2020 for academic periods beginning in 2020 or the first 3 months of 2021.

 The American Opportunity Credit (AOTC)

  • Provides up to $2,500 of the cost of qualified tuition and related expenses for each eligible student.
  • Part of the AOTC credit is refundable and part non-refundable. If the amount of the credit for which the taxpayer is eligible is more than the tax liability, the balance is refundable up to a maximum of 40%.
  • The credit is not refundable if the taxpayer is a child who meets all the following conditions:
    • is under age 18 (or a student who is at least 18 and under 24 and whose earned income does not exceed one-half of his/her support)
    • has at least one living parent
    • does not file a joint return

The Lifetime Learning Credit (LLC)

  • Equals 20% of adjusted qualified education expenses, up to a maximum of $10,000 adjusted qualified education expenses per return.
  • Has a maximum that can be claimed on the return for the year of $2,000, regardless of the number of students for whom qualified education expenses were paid.
  • Is gradually reduced (phased out) for MAGI between $59,000 and $69,000 ($118,000 and $138,000 if you file a joint return). You cannot claim a credit if your MAGI is $69,000 or more ($138,000 or more if you file a joint return).

Comparison of Credits for 2020 (from the 2020 instructions for Form 8863):

      

Other Notes:

  • Cannot file MFS.
  • Cannot be the dependent of another.
  • Cannot claim both for the same student in the same year.
  • Entries for dependents, taxpayer, or spouse go on Screen 8863. Choose the SSN from the drop list and create a new screen (Page Down) for each student. 
  • Cannot claim both one of these credits and the Tuition & Fees deduction for the same student in the same year.

Note: Beginning with TY 2016, there are additional Due Diligence requirements for taxpayers claiming the American Opportunity Credit. For a description of these requirements, see "Facts About Refundable Credits Due Diligence" in Related Links below. 

Data Entry 

Form 1098-T Tuition Statement will assist you in entering AOTC or Lifetime Learning Credits.  On the 8863 screen, choose the student’s SSN from the drop list under Student’s SSN. If a dependent who is over 18 does not show on the list, check data entry for that dependent to be sure Over 18 and a student has been selected. You may need to recalculate the return to have the SSN appear in the drop list. 


A separate 8863 screen is needed for each student for whom a credit is claimed. Multiple schools attended by the same student can be entered on the 8863 screen by using the Educational Institutions tab located at the top of the screen.

Enter in applicable expenses and education assistance amounts in the lines below question 26 on the screen. Then, check the education benefit being claimed to have the software calculate the credit amount for the student. These check-boxes are mutually exclusive since no two credits/deductions can be claimed for the same individual in the same year: 


  • Question 22 parts (2) and (3) are the 1098-T lines under the information about the educational institution. These questions are located below the educational institution name and address sections:


Note about Qualified Education Expenses: 

Per the 8863 Instructions, each credit only allows certain expenses to be included for the credit calculation. You can enter the amounts as applicable on the 8863 screen and Drake Tax will only carry the allowable amount to the form. This is why there are separate lines for expenses required to be paid (red) and additional expenses not required to be paid (blue) to the educational institution: 

  • American opportunity credit: Qualified education expenses include amounts paid for tuition, fees, and course materials, which include books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
  • Lifetime learning credit: Qualified education expenses include amounts paid for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance.
    • The credit will only be based on the amounts required to be paid (red box above). 

In Drake 15 and prior,

  • Details for two schools can be entered on the first 8863 screen for each student.  Press Page Down to enter additional information for 3 or more schools on subsequent screens.
  • Complete the Adjusted Qualified Education Expenses Worksheet in the Instructions for Form 8863 to determine what amount to enter on line 27 for the American Opportunity Credit or line 31 for the Lifetime Learning Credit.
    • See the field help (F1) for lines 27 and 31 for additional information regarding which qualified expenses should be entered here.
  • A taxpayer cannot claim both a credit and a deduction for the same student in the same year. An entry in the field Enter current-year qualifying expenses to force the tuition and fees deduction forces the deduction even if credit information is entered.
    • See the Help screen for this field (press F1). 
  • Question 22 parts (2) and (3) are the 1098-T lines under the information about the educational institution. These questions are located below the educational institution name and address sections.

For more information see:


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