The American Recovery and Reinvestment Act of 2009 introduced significant changes to education credits.
American Opportunity Credit (AOC) – This credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Taxpayers may be able to take a credit of up to $2,500 for qualified education expenses paid for each student who qualifies for the American opportunity credit. Additionally, up to 40% of this credit may be refundable.
Hope Credit – The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student. This credit may be more advantageous only if at least one student attended an educational institution located in the Midwestern disaster area. For qualifying education institutions located in a Midwestern disaster area there is an expanded definition of qualifying expense and a credit of up to $3,600. However, both the American Opportunity Credit and Hope Credit cannot be claimed on the same tax return. If claiming the Hope credit for one student that attended an educational institution in a Midwestern disaster area, the Hope Credit must be claimed for all students that qualify.
Lifetime Learning Credit – For the tax year, taxpayers may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim the Hope, American Opportunity and the Lifetime Learning credit for the same student in one year.
For more information on these credits, visit https://www.irs.gov/newsroom/article/0,,id=213044,00.html