Can I Receive Tax Credit for Graduate School Tuition?
The Internal Revenue Service allow tax credits for graduate school tuition through the Lifetime Learning Credit and the American Opportunity Credit. However, you can claim only one tax credit for educational expenses, so if you qualify for both, pick the one that results in a larger tax break.
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American Opportunity Credit
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The American Opportunity Credit is available only in your first four years of postsecondary education. Though most students do not finish undergraduate work sooner than four years, if you have finished in three years and use your fourth year as a graduate student, you could claim the American Opportunity Credit. This credit equals 100 percent of your first $2,000 in qualifying expenses and 25 percent of your next $2,000 in qualifying expenses, so your maximum credit would be $2,500. Your maximum modified adjusted gross income to claim the American Opportunity Credit is $180,000 if filing a joint return or $90,000 if single.
Lifetime Learning Credit
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The Lifetime Learning Credit is available to all postsecondary students, including graduate students, regardless of the years you have been in school. However, this credit is not quite as generous as the American Opportunity Credit, totaling 20 percent of your first $10,000 in expenses, for a maximum credit of $2,000. Your maximum modified adjusted gross income to claim the Lifetime Learning Credit is $120,000 if filing a joint return or $60,000 if single.
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Qualifying Graduate Tuition Payment
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Only graduate school tuition you pay with taxable sources can count toward your income tax credit. For example, any tuition you pay with scholarships or grants does not count toward the credit because it is not taxable income to you. However, if you take out student loans to pay for your graduate school tuition, you can include those costs because you must repay those loans with taxable income.
Claiming the Credit
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After the end of the year, your graduate school sends you a Form 1098-T, which documents how much you paid in tuition for the year. To claim either the Lifetime Learning Credit or the American Opportunity Credit for your graduate school tuition, file Form 8863 to figure the value of you credit. After calculating the credit, report it on Form 1040 or Form 1040A. The value of the credit directly lowers your income taxes due.
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