Key takeaways
What this article covers, in order:
- The American opportunity tax credit
- The lifetime learning credit
- Income limits for 2025 and 2026
- What changes for 2026: Social Security numbers
- Who claims the credit: parent or student?
- How the credits interact with 529 plans and scholarships
There is no federal college tuition deduction any more. The tuition and fees deduction was repealed for tax years after 2020, and its job is now done by two credits: the American opportunity tax credit (AOTC), worth up to $2,500 per eligible student, and the lifetime learning credit (LLC), worth up to $2,000 per return. A credit cuts your tax bill dollar for dollar, so for most families these are worth more than the old deduction ever was.
The catch is that the two credits have different rules, they share income limits, and they interact with 529 withdrawals and scholarships in ways that can cost you money if you get the order wrong. This guide covers the 2025 rules, what changes for 2026, and a worked example.
The American opportunity tax credit
The AOTC is aimed at the first four years of a degree. For 2025 returns:
- Amount: 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000, so the maximum is $2,500 per eligible student.
- Refundable portion: 40% of the credit is refundable, up to $1,000. You can receive that part even if you owe no tax.
- Student must: be pursuing a degree or other recognised credential, be enrolled at least half-time for at least one academic period starting in the tax year, not have finished the first four years of postsecondary education before the year began, and not have a felony drug conviction at the end of the year.
- Limit on years: no more than four tax years per student.
- Qualified expenses: tuition, required fees, and course materials such as books, supplies and equipment needed for the course, whether or not bought from the school.
The lifetime learning credit
The LLC is broader but smaller. It covers undergraduate, graduate and professional degree courses, and courses taken to acquire or improve job skills, with no requirement to be half-time or in a degree program.
- Amount: 20% of up to $10,000 of qualified expenses, so the maximum is $2,000 per return no matter how many students you have.
- Not refundable: it can reduce your tax to zero but not below.
- No limit on years: you can claim it for the same student year after year.
Income limits for 2025 and 2026
Both credits phase out over the same modified adjusted gross income (MAGI) range: $80,000 to $90,000 for single filers and $160,000 to $180,000 for married couples filing jointly. At $90,000 or more ($180,000 or more joint), you get nothing. These thresholds are not inflation-adjusted, and the IRS's 2026 inflation release confirms the same $80,000 to $90,000 range for the lifetime learning credit. You cannot claim either credit if you are married filing separately.
What changes for 2026: Social Security numbers
Starting with 2026 returns, IRS Publication 970 says anyone claiming the AOTC or the LLC must have a Social Security number that is valid for work and issued before the return's due date. If the person claiming is not the student, the student needs one too. Families where a parent or student currently uses an ITIN should plan for this before the 2026 return.
Who claims the credit: parent or student?
If you claim the student as a dependent, only you can claim the credit for that student's expenses, even if the student paid them. If you could claim the student but choose not to, the student may claim it. Run the numbers both ways when your income sits in or above the phase-out range, because a student with a little taxable income might use at least the refundable part of the AOTC.
How the credits interact with 529 plans and scholarships
You cannot use the same dollar of expense twice. Publication 970 sets the order: first subtract tax-free assistance such as scholarships and Pell grants, then subtract the expenses you used for a credit. Only what is left can be covered tax-free by a 529 withdrawal. If a 529 withdrawal pays for expenses you also used for the AOTC, part of the withdrawal's earnings becomes taxable.
The practical rule: pay at least $4,000 of AOTC-eligible costs from income or savings outside the 529, claim the full credit on those, and use the 529 for everything else, including room and board, which the credits do not cover but the 529 does.
Worked example: a sophomore, a 529 and a self-employed parent
Dana runs a one-person HVAC repair business in Raleigh as a sole proprietor and files jointly with her husband. Their 2025 MAGI is $152,000. Their son is a full-time sophomore. For 2025 they paid:
- Tuition and required fees: $11,400
- Required textbooks and a lab kit: $900
- On-campus housing and meal plan: $9,800
- A $3,000 merit scholarship was applied directly to tuition.
Step by step:
- Total credit-eligible expenses: $11,400 + $900 = $12,300. Housing and meals do not count for the credits.
- Subtract the scholarship: $12,300 − $3,000 = $9,300 of adjusted expenses.
- Set aside $4,000 for the AOTC: they pay $4,000 of tuition from their checking account. Credit: 100% of $2,000 + 25% of $2,000 = $2,500. Their MAGI of $152,000 is below $160,000, so there is no phase-out.
- Use the 529 for the rest: the remaining $5,300 of tuition and books plus the $9,800 of housing (within the college's cost-of-attendance allowance) is $15,100. A 529 withdrawal up to that amount is tax-free.
- Result: a $2,500 credit plus a tax-free 529 withdrawal, with no expense counted twice.
Had they pulled the whole bill from the 529 and then also claimed the AOTC, part of the 529 earnings would have become taxable, which is the mistake the ordering rule prevents.
When education is a business expense instead
Dana's own refrigerant-handling refresher course is different. Education that maintains or improves skills in the business you already run can be a business expense on Schedule C, not a credit, as long as it does not qualify you for a new trade. Driving to and from such a course in 2025 is deductible at 70 cents a mile under Publication 970's business education rules. She cannot claim both the LLC and a business deduction for the same course fee, so she picks whichever saves more; for a self-employed owner the Schedule C deduction also reduces self-employment tax.
Common mistakes
- Looking for the old deduction. Form 8917 and the tuition and fees deduction do not apply to any year after 2020.
- Relying only on Form 1098-T. The school's form may not match what you actually paid in the calendar year. Use your own payment records.
- Claiming both credits for the same student. You can claim the AOTC for one child and the LLC for another on the same return, but not both for one student.
- Counting room and board. Housing never counts toward the AOTC or LLC.
- Missing the school's EIN on Form 8863. The AOTC claim needs it.
- Using up AOTC years early. If a student took dual-enrollment classes in high school, check how many AOTC years have already been claimed.
hellobooks< / a > -helps">How HelloBooks helps
For a business owner, the useful split is between education costs that belong in the business and those that belong on the family return. In HelloBooks you can tag a course fee to the business with tracking by class or project, record a tuition payment from the business account as an owner's draw, and attach the receipt or 1098-T so the document is there at tax time. The mileage tracker keeps an IRS-compliant log of business trips, including drives to qualifying courses. Your CPA or tax software still prepares Form 8863; HelloBooks keeps the records that feed it.
General information only, current as of November 2026, and not tax or legal advice. Education credit rules change; confirm the details in IRS Publication 970 or with a qualified CPA.
