The American Opportunity credit is a per student credit that allows a credit of 100% of the first $2,000 of tuition and fees paid and 25% of the second $2,000 spent. Students must be attending school more than half time, in a degree or certificate program, in their first four years of college, university, or trade school and must be free of any felony drug convictions. The American Opportunity credit is both nonrefundable and refundable so 60% of the credit can be used to reduce taxes to zero only and any remaining credit from that portion is lost. The remaining 40% of the credit can be added to refund once the taxes are reduced to zero.
The Lifetime Learning credit is a nonrefundable credit of 20% of the amount paid in tuition and fees to attend any college or trade school. Students don’t have to be enrolled in a degree or certificate program, attend half-time, or be in their first four years of school. You can even use this credit for the costs of graduate courses. The maximum credit of $2,000 covers all eligible students on the tax return. The Lifetime Learning Credit can only be used to zero taxes with any remaining credit lost.