Education credits are the two federal income tax credits allowed by section 25A of the Internal Revenue Code for qualified tuition and related expenses: the American Opportunity Tax Credit and the Lifetime Learning Credit (26 U.S.C. 25A). Both are figured on Form 8863, which is attached to Form 1040 or 1040-SR, and only one of them may be claimed for any one student in a year (IRS, Education credits: AOTC and LLC).
What Separates the Two Credits
The American Opportunity Tax Credit is counted per student. It is worth up to $2,500 for each eligible student, part of it is refundable, and it reaches only the first four years of postsecondary education and only four tax years per student (IRS, Education credits: AOTC and LLC).
The Lifetime Learning Credit is counted per return. It is 20% of the first $10,000 of qualified expenses paid for all students claimed on the return, which caps it at $2,000 for the year however many students there are. It is nonrefundable, and it runs for an unlimited number of tax years (IRS, Education credits: AOTC and LLC).
Both phase out across the same income band, between $80,000 and $90,000 of modified adjusted gross income, or between $160,000 and $180,000 on a joint return (IRS, Instructions for Form 8863).
The two also draw the expense line differently. Course materials the student needs for a course of study count for the American opportunity credit even where they are not paid to the school, while for the lifetime learning credit books, supplies and equipment count only where they are required to be paid directly to the school as a condition of enrollment or attendance (IRS, Education credits: AOTC and LLC).
The Rules That Exist Only Because There Are Two
Form 8863 carries the bar on its student page, cautioning that the American opportunity credit and the lifetime learning credit cannot both be taken for the same student in the same year (IRS, Form 8863 (2025)). Both may still appear on one return, but only where they are for different students and different expenses (IRS, Education credits: AOTC and LLC).
The statute reaches that result through the expenses rather than the student. Section 25A(c)(2)(A) provides that the qualified tuition and related expenses of a student for whom the American Opportunity Tax Credit is allowed for the year are not taken into account under the Lifetime Learning Credit (26 U.S.C. 25A). An expense used for either credit also cannot make a Coverdell or section 529 plan distribution tax free (IRS, Instructions for Form 8863), a coordination rule worked through in 529 tax benefits.
The Form 8863 instructions settle the choice. Where a student’s adjusted qualified education expenses could go to either credit, the American opportunity credit will always be greater than the lifetime learning credit (IRS, Instructions for Form 8863).
Say $4,000 of adjusted qualified education expenses were paid for one student who meets the American opportunity conditions, an amount at which that credit already sits on its $2,500 ceiling while the other pays a flat 20% (IRS, Education credits: AOTC and LLC). Assume income stays below the phase-out band.
Adjusted qualified education expenses for one student 4,000
American Opportunity Tax Credit on those expenses 2,500
Lifetime Learning Credit on those expenses 800Where the Two Credits Land on a Return
Only one of the two has a refundable exit. Part of the American opportunity amount leaves Form 8863 on line 8 for Form 1040 line 29, while the lifetime learning credit can only ever reduce tax and leaves Form 8863 inside the nonrefundable total on line 19, which Schedule 3 (Form 1040) picks up on line 3 (IRS, Form 8863 (2025)).
What a Preparer Checks on an Education Credit Claim
A client’s Form 1098-T is a starting point, not the answer. Box 1 may differ from what was actually paid, only amounts actually paid belong on Form 8863, expenses that never reached the form may still be claimed where payment can be substantiated, and expenses it shows as covered by qualified scholarships may not (IRS, Instructions for Form 8863).
Paid preparer due diligence follows only one of the two. The American opportunity credit is one of the four benefits on Form 8867 and the lifetime learning credit is not, so a lifetime learning claim does not by itself pull a return into that regime (IRS, Form 8867 (Rev. November 2024)).
Accountably places trained offshore tax preparers inside US CPA and EA firms, and a firm can put a block of its own returns through a trial task before any signature depends on the work.
