- American opportunity credit.
- Lifetime learning credit.
- Tuition and fees deduction.
In any one year you can only claim one of the above for the same student. The term "qualified education expenses" is used to describe the expenditures that are eligible for the credit or deduction.
For purposes of all three tax benefits, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. The principal difference among the three is how "certain related expenses" are defined.
For purposes of the American opportunity credit, expenses for books, supplies and equipment needed for a course of study are included in qualified education expenses, whether the materials are purchased from the educational institution.
The following example from Publication 970 illustrates the foregoing:
Grace and William, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. William bought his books from a friend; Grace bought hers at College W's bookstore. Both are qualified education expenses for the American opportunity credit.
For purposes of the lifetime learning credit and the tuition and fees deduction, only related expenses billed by the institution are included as qualified education expenses. The following example from the same publication illustrates the difference:
Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W's bookstore. Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.
Based on the foregoing, the tool purchases will qualify as a related expense for the American opportunity credit only.
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