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IRS Form 8863 is a tax form used to claim education credits. There are two education credits that can be claimed on Form 8863: the American Opportunity Credit and the Lifetime Learning Credit.
- The American Opportunity Credit is a refundable credit that can be claimed for the first four years of post-secondary education. The credit is worth up to $2,500 per year for each eligible student.
- The Lifetime Learning Credit is a nonrefundable credit that can be claimed for any year of post-secondary education. The credit is worth up to $2,000 per year.
To claim an education credit on Form 8863, you must meet certain eligibility requirements. For example, you must be a taxpayer who can claim the student as a dependent on your tax return. You must also have qualified education expenses, which are expenses paid for tuition, fees, books, supplies, and equipment required for courses at an eligible educational institution.
To complete Form 8863, you will need to gather your Form 1098-T, which is a tax form that colleges and universities send to students to report their qualified education expenses. You will also need to gather your income information, such as your adjusted gross income (AGI).
Once you have gathered all of the necessary information, you can complete Form 8863. The form is divided into three parts:
- Part I is used to determine your adjusted qualified education expenses.
- Part II is used to calculate your education credit.
- Part III is used to provide information about the student and the educational institution.
Once you have completed Form 8863, you will attach it to your federal income tax return. The education credit will reduce the amount of tax that you owe.
Claiming the American Opportunity Credit
The American Opportunity Tax Credit (AOTC) is a refundable tax credit that can be claimed for the first four years of post-secondary education. The credit is worth up to $2,500 per year for each eligible student.
To claim the AOTC, you must meet the following eligibility requirements:
- You must be the taxpayer or a dependent of the taxpayer who claims the student as a dependent on their tax return.
- The student must be enrolled at least half-time in a degree or certificate program at an eligible educational institution.
- The student must not have already completed the first four years of post-secondary education.
- The student’s modified adjusted gross income (MAGI) must be less than or equal to $80,000 for single filers or $160,000 for married couples filing jointly.
If you meet the eligibility requirements, you can claim the AOTC by completing Form 8863 and attaching it to your federal income tax return. You will need to provide information about the student, the educational institution, and the qualified education expenses.
The AOTC is a valuable tax credit that can help offset the cost of college. If you are eligible to claim the credit, be sure to do so when you file your taxes.
Here are some additional things to keep in mind when claiming the AOTC:
- You can only claim the AOTC for the first four years of post-secondary education.
- If you are married filing separately, you can only claim half of the maximum credit amount.
- The AOTC is subject to a phase-out based on your MAGI.
Claiming the Lifetime Learning Credit :
The Lifetime Learning Credit (LLC) is a non-refundable tax credit that can be claimed for any year of post-secondary education. The credit is worth up to $2,000 per year.
To claim the LLC, you must meet the following eligibility requirements:
- You must be the taxpayer or a dependent of the taxpayer who claims the student as a dependent on their tax return.
- The student must be enrolled in any post-secondary education program, including undergraduate, graduate, and professional degrees, as well as courses to acquire or improve job skills.
- The student’s modified adjusted gross income (MAGI) must be less than or equal to $90,000 for single filers or $180,000 for married couples filing jointly.
If you meet the eligibility requirements, you can claim the LLC by completing Form 8863 and attaching it to your federal income tax return. You will need to provide information about the student, the educational institution, and the qualified education expenses.
The LLC is a valuable tax credit that can help offset the cost of college. If you are eligible to claim the credit, be sure to do so when you file your taxes.
Here are some additional things to keep in mind when claiming the LLC:
- You can claim the LLC for any year of post-secondary education, even if you have already claimed the AOTC for the same student.
- If you are married filing separately, you can only claim half of the maximum credit amount.
- The LLC is subject to a phase-out based on your MAGI.
Calculating your MAGI
Modified adjusted gross income (MAGI) is a calculation used by the IRS to determine eligibility for certain tax credits and deductions. MAGI is calculated by adding adjusted gross income (AGI) to certain deductions and income.
To calculate your MAGI, you will need to know your AGI and the following items:
- Any student loan interest you deducted
- Any qualified tuition and fees you deducted
- One-half of your self-employment tax
- Any excluded foreign income
- Any income from U.S. savings bonds used to pay for higher education expenses
Once you have these items, you can calculate your MAGI by following these steps:
- Add your AGI to the following items:
- Student loan interest deduction
- Qualified tuition and fees deduction
- One-half of self-employment tax
- Excluded foreign income
- Income from U.S. savings bonds used to pay for higher education expenses
- Subtract any of the following items, if applicable:
- Traditional IRA contributions
- Non-taxable Social Security payments
Your MAGI is the amount you get after completing these steps.
Here is an example of how to calculate MAGI:
- AGI: $50,000
- Student loan interest deduction: $1,000
- Qualified tuition and fees deduction: $2,000
- One-half of self-employment tax: $1,000
- Excluded foreign income: $5,000
- Income from U.S. savings bonds used to pay for higher education expenses: $1,000
MAGI = $50,000 + $1,000 + $2,000 + $1,000 + $5,000 + $1,000 = $60,000
In this example, the MAGI is $60,000.
Preparing Form 8863
Form 8863 is a tax form used to claim education credits. There are two education credits that can be claimed on Form 8863: the American Opportunity Credit and the Lifetime Learning Credit.
To prepare Form 8863, you will need to gather the following information:
- Your adjusted gross income (AGI)
- The student’s modified adjusted gross income (MAGI)
- The student’s enrollment status
- The student’s qualified education expenses
- The educational institution’s name and taxpayer identification number (EIN)
Once you have gathered this information, you can begin filling out Form 8863. The form is divided into three parts:
- Part I is used to determine your adjusted qualified education expenses.
- Part II is used to calculate your education credit.
- Part III is used to provide information about the student and the educational institution.
Part I: Adjusted Qualified Education Expenses
In Part I of Form 8863, you will need to determine your adjusted qualified education expenses. Adjusted qualified education expenses are your qualified education expenses minus any expenses that are excluded from the definition of qualified education expenses.
Part II: Education Credit
In Part II of Form 8863, you will calculate your education credit. The amount of your education credit will depend on the type of credit you are claiming, your AGI, and the student’s MAGI.
Part III: Information About the Student and the Educational Institution
In Part III of Form 8863, you will provide information about the student and the educational institution. This information includes the student’s name, social security number, and date of birth, as well as the educational institution’s name and EIN.
Once you have completed Form 8863, you will attach it to your federal income tax return. The education credit will reduce the amount of tax that you owe.
