Figuring the Credit

Here are the general steps for figuring the amount of education credits:

1. Review the list of qualifying students and expenses, and decide if the American opportunity credit or lifetime learning credit is more suitable. See the requirements discussed earlier.
2. In the American opportunity or lifetime learning credits sections of Form 8863, enter each qualifying student and social security number. Be sure the student is the taxpayer or the taxpayer's spouse or dependent (claimed on the return).
3. Enter each student's expenses. Be sure that these:
   • Include only qualified expenses
   • Are reduced by untaxed benefits
   • Do not exceed the limit for the credit
4. Find the totals for each section and apply the limits, then transfer the amounts to Part III and IV to determine the refundable and nonrefundable credits. Apply the income test and do the calculations.

If you find taxpayers claimed an education credit in a prior year and they were refunded part or all of the expenses they used to claim the American opportunity or lifetime learning credit, they may have to repay (recapture) all or part of the credit. This is beyond the scope of the VITA/TCE program. Information can be found in Publication 970. Advise the taxpayer to consult a professional tax preparer.