AOTC or lifetime learning credit for one student, with the income phase-out
Updated October 2026
American opportunity tax credit (AOTC). For a student in the first four years of postsecondary education, enrolled at least half-time for at least one academic period in a program leading to a degree or credential, with no felony drug conviction, and for whom the AOTC has been claimed in fewer than four earlier tax years. Lifetime learning credit (LLC). For any course at an eligible school, including graduate school, a single class or job-skills training; no half-time requirement and no limit on years. You can claim only one of the two credits for the same student in a year, but you can claim the AOTC for one child and the LLC for another. The LLC limit is per return ($10,000 of expenses), while the AOTC is per student.
AOTC = 100% of the first $2,000 of qualified expenses + 25% of the next $2,000. LLC = 20% of up to $10,000. Then, if MAGI is in the phase-out range, multiply by (upper limit − MAGI) ÷ range, the fraction on Form 8863 rounded to three decimals.
Example 1 (Pub 970, recapture section). After a refund of $4,000 of a $7,000 tuition payment, the AOTC is refigured on $3,000 of expenses: $2,000 + 25% × $1,000 = $2,250.
Example 2 (Pub 970, phase-out). A $2,500 tentative AOTC for parents filing jointly with $165,000 of MAGI: ($180,000 − $165,000) ÷ $20,000 = 0.750, and 0.750 × $2,500 = $1,875.
Default case. $4,000 of tuition, parents at $120,000 joint: no phase-out, AOTC $2,500, of which 40% ($1,000) is refundable and $1,500 reduces tax. The LLC would be 20% × $4,000 = $800.
Qualified expenses are tuition and required enrollment fees paid in the year, plus, for the AOTC only, books, supplies and equipment needed for the course even if bought elsewhere. Start from Form 1098-T box 1 (amounts paid) but check it against your own records. Tax-free aid is anything that paid those same expenses without being taxed: scholarships and grants (including Pell), employer education assistance, veterans’ benefits, and the part of a 529 or Coverdell withdrawal you treat as tax-free. MAGI is AGI (Form 1040 line 11) plus any foreign earned income exclusion. The calculator estimates your tax before credits from MAGI with the 2026 standard deduction, to show where a nonrefundable credit would be capped.
The ranges are fixed in the law and not adjusted for inflation: $80,000-$90,000, or $160,000-$180,000 on a joint return. Married people filing separately cannot claim either credit.
| MAGI, single or HoH | MAGI, joint | Fraction kept | Full AOTC becomes | Full LLC becomes |
|---|---|---|---|---|
| $80,000 | $160,000 | 1.000 | $2,500 | $2,000 |
| $82,500 | $165,000 | 0.750 | $1,875 | $1,500 |
| $85,000 | $170,000 | 0.500 | $1,250 | $1,000 |
| $87,500 | $175,000 | 0.250 | $625 | $500 |
| $90,000 | $180,000 | 0.000 | $0 | $0 |
| Student and family | Expenses after aid | Phase-out fraction | AOTC | LLC | Better |
|---|---|---|---|---|---|
| Freshman, $4,000 tuition, parents MAGI $120,000 joint | $4,000 | 1.000 | $2,500 ($1,000 refundable) | $800 | AOTC |
| Graduate student, $12,000 tuition, single, $55,000 | $12,000 | 1.000 | Not eligible | $2,000 | LLC |
| Parents at $170,000 joint, $5,000 tuition | $5,000 | 0.500 | $1,250 ($500 refundable) | $500 | AOTC |
| Student with $6,000 tuition, $3,000 of it from a 529 distribution | $3,000 | 1.000 | $2,250 ($900 refundable) | $600 | AOTC |
| Single parent, $85,000, junior with $4,000 of tuition | $4,000 | 0.500 | $1,250 ($500 refundable) | $400 | AOTC |
| Part-time community college student, $1,800, single, $30,000 | $1,800 | 1.000 | Not eligible | $360 | LLC |
When the student qualifies, the AOTC is larger on any expense amount up to $10,000 and is partly refundable; the LLC matters for graduate students, part-time students and anyone past the four-year limit. The 529 row counts only the $3,000 not covered by the tax-free distribution.
The same dollar of expense cannot both earn a credit and justify a tax-free 529 withdrawal or scholarship. A common plan is to pay at least $4,000 of tuition from income or savings outside the 529 so the full AOTC is available, and use the 529 for the remaining tuition and for room and board. In some cases a student can choose to treat part of a scholarship as taxable income and apply it to room and board, freeing tuition for the credit; Publication 970 explains when that helps.
Up to 40% of the AOTC ($1,000 at most) is refundable even with no tax owed. The refundable part is not available to a student claiming their own credit who is under 18, or 18 with earned income under half of their support, or 19 to 23 and a full-time student with earned income under half of their support, if a parent is alive and the student is not filing jointly. Starting with 2026 returns, the AOTC also requires a Social Security number valid for work for the taxpayer (and for the student, if the student is not the taxpayer), issued by the return’s due date. The LLC is never refundable.
Counted: tuition, required enrollment fees, and (AOTC only) required course materials. Not counted for either credit: room and board, insurance, medical or student health fees, transportation, and personal costs, even if paid to the school. Activity fees count only if every student must pay them to enroll.
It handles one student at a time and does not apply the per-return $10,000 LLC limit across several students. It estimates tax from MAGI with the standard deduction and ignores other credits, so the nonrefundable cap is approximate. It does not decide who may claim the student (a parent who claims the student as a dependent takes the credit; otherwise the student may), does not model the scholarship-as-income strategy, and does not compute recapture after a refund. For those, use Form 8863 and Publication 970, or ask a tax professional.
Claiming the AOTC a fifth year. Four tax years per student, ever. Trusting box 1 blindly. Form 1098-T shows amounts the school received in the calendar year, which can include spring tuition paid in December or exclude books you bought elsewhere. Double-counting 529 money. Expenses paid with a tax-free 529 withdrawal cannot also earn the credit. Both parent and student claiming. Only one return can claim a credit for the student. Filing separately. No credit at all. Counting room and board. It never qualifies.