Taxpayer Relief Act
The Taxpayer Relief Act of 1997 (Public Law 105-34, 111 Stat. 788, TRA '97) added section 25A to the Internal Revenue Code to provide the Hope Scholarship Tax Credit and the Lifetime Learning Tax Credit (tax benefits for education). The Hope Scholarship Tax Credit ended with the 2009 tax year and in its place, the American Opportunity Credit became effective for tax year 2010. Starting with the 2010 tax year, the IRS Publication 970 provided guidance on the American Opportunity Credit. TRA '97 also added section 6050S to the Code, which requires eligible educational institutions to file information returns to assist the taxpayer and the IRS in determining the education credit that taxpayers may claim.
In general, the American Opportunity Tax Credit and the Lifetime Learning Tax Credit allow taxpayers to claim a nonrefundable credit against their federal income taxes for certain post-secondary educational expenses. A tax credit reduces the amount of income tax you may have to pay.
Difference between the American Opportunity and Lifetime Learning Credits:
There are several differences between these two credits. For example, you can claim the American Opportunity Credit based on the same student’s expenses for no more than four tax years, which includes any tax years you claimed the Hope Scholarship Tax Credit for that student. However, there is no limit on the number of years for which you can claim a Lifetime Learning Credit based on the same student’s expenses.
If you are eligible to claim the Lifetime Learning Credit and you are also eligible to claim the American Opportunity Credit for the same student in the same year, you can choose to claim either credit, but not both.
More information is available in the IRS Publication 970 Tax Benefits for Education.