A Tax Break for Grad School

I graduated from college a few years ago, but I signed up to take a few graduate classes part-time starting this fall. Can I qualify for the American Opportunity Credit?

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You can only take the American Opportunity Credit for the first four years of postsecondary education, but you may be able to take the Lifetime Learning Credit, which can reduce your tax bill by up to $2,000 per return.

The credit is calculated as 20% of up to $10,000 of qualified expenses, which include tuition, fees and related course materials but not room and board. Unlike the rules for the American Opportunity Credit, you don’t need to be attending school at least half-time, and you don’t have to be pursuing a degree. But the classes must be taken at an educational institution that is eligible to participate in the U.S. Department of Education’s student-aid program, which includes colleges, universities, vocational schools and other postsecondary institutions. There’s no limit to the number of years that each student can claim the Lifetime Learning Credit.

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You can claim the credit for yourself, your spouse or your dependent. If you file your own tax return and are not dependent on any other taxpayer, you can claim the credit yourself. If your parents claim you as a dependent, they’re the ones who claim the credit. To qualify for the full credit in 2013, your modified adjusted gross income must be below $53,000 if you’re single or $107,000 if you’re married filing jointly. The size of the credit gradually phases out and disappears if you earn more than $63,000 if you are single or $127,000 if you are married filing jointly. These income limits are lower than those for the American Opportunity Credit.

For more information about both the Lifetime Learning and the American Opportunity credits, see IRS Publication 970, Tax Breaks for Education, and the IRS’s Tax Benefits for Education Information Center.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.