Form 8863 (2014) — Education Credits Checklist
Purpose
You can use Form 8863 to claim the American Opportunity Credit or the Lifetime Learning Credit for education expenses paid during the 2014 tax year. The American Opportunity Credit provides up to $2,500 per eligible student with a partially refundable component, while the Lifetime Learning Credit offers up to $2,000 per return as a nonrefundable credit.
Students qualify for the American Opportunity Credit only during their first four years of postsecondary education. Income phaseout thresholds and credit structure for 2014 remained unchanged from prior years since the credit replaced the Hope Credit in 2009.
Filing Steps
Step 1: Complete Student Information and Initial Form Sections
Complete Part III separately for each student before calculating credits in Part I or Part II. Verify that the student’s name and Social Security number exactly match the information reported on Form 1040 or Form 1040A for the 2014 tax year.
Determine which credit applies to each student based on eligibility rules. You cannot claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student in the same tax year.
Step 2: Verify American Opportunity Credit Eligibility
You must confirm that all eligibility requirements are met before claiming the American Opportunity Credit for any student. The student must not have completed the first four years of postsecondary education before 2014, as determined by the eligible educational institution.
Neither the American Opportunity Credit nor the Hope Scholarship Credit can have been claimed for this student for any four prior tax years. Enrollment at least half-time for at least one academic period that began or is treated as begun in 2014 at an eligible educational institution is required.
Programs must lead to a degree, certificate, or other recognized educational credential to qualify for this credit. As of the end of 2014, the student must not have been convicted of a federal or state felony for possessing or distributing a controlled substance.
Step 3: Determine Lifetime Learning Credit Eligibility
Confirm whether the student qualifies for the Lifetime Learning Credit. This credit has no limit on the number of years claimed, does not require half-time enrollment, and does not disqualify students with felony drug convictions. You may claim this credit for students who do not qualify for or are not claiming the American Opportunity Credit.
Step 4: Review Form 1098-T and Educational Institution Information
Verify receipt of Form 1098-T from each educational institution for 2014 showing amounts in box 2, or use a prior-year Form 1098-T with box 2 filled and box 7 checked. Enter the institution’s federal employer identification number on line 22(4) only if you received a qualifying Form 1098-T. Use only the amounts actually paid in 2014 when calculating qualified education expenses, regardless of the amounts reported on Form 1098-T.
Step 5: Calculate Adjusted Qualified Education Expenses
Reduce qualified education expenses by any tax-free educational assistance received in 2014. For the American Opportunity Credit, enter adjusted qualified expenses on line 27, capped at $4,000 per student. For the Lifetime Learning Credit, determine adjusted qualified expenses before applying the credit percentage.
Step 6: Calculate the American Opportunity Credit
Calculate the credit using the statutory formula. Subtract $2,000 from the amount on line 27 and enter the result on line 28. Multiply line 28 by 25 percent and enter the result on line 29. Add $2,000 to the amount on line 29 to determine the tentative American Opportunity Credit on line 30. The maximum allowable credit per student equals $2,500.
Step 7: Calculate the Lifetime Learning Credit
Calculate 20 percent of adjusted qualified education expenses up to a maximum of $10,000 per return. Enter the result on line 31. The maximum Lifetime Learning Credit equals $2,000 per tax return, regardless of the number of students.
Step 8: Allocate Refundable and Nonrefundable Credit Amounts
You must complete Part I to calculate the refundable portion of the American Opportunity Credit by multiplying the allowable credit by 40 percent on line 8. The maximum refundable amount equals $1,000 per eligible student, representing 40 percent of the maximum $2,500 credit.
Enter the refundable amount on Form 1040 line 68 or Form 1040A line 44 for the 2014 tax year. Use the Credit Limit Worksheet provided in the instructions to calculate the nonrefundable portion, then enter that amount on Form 1040 line 50 or Form 1040A line 33.
Income Phaseout Thresholds for 2014
American Opportunity Credit Phaseout
Your American Opportunity Credit phases out if your modified adjusted gross income falls between $80,000 and $90,000 for single, head of household, or qualifying widow(er) filers. Married taxpayers filing jointly face a phaseout range of $160,000 to $180,000. The credit becomes unavailable once modified adjusted gross income reaches $90,000 for single filers or $180,000 for married filing jointly.
Lifetime Learning Credit Phaseout
Modified adjusted gross income between $54,000 and $64,000 triggers a phaseout for single, head of household, or qualifying widow(er) filers claiming the Lifetime Learning Credit. The phaseout range for married filing jointly extends from $108,000 to $128,000. You lose eligibility entirely when modified adjusted gross income equals or exceeds $64,000 for single filers or $128,000 for joint filers.
Qualified Education Expenses
American Opportunity Credit Expenses
Qualified expenses include tuition, required enrollment fees, and course materials needed for a course of study, whether or not purchased from the educational institution. Course-related books, supplies, and equipment qualify even when purchased from third-party vendors.
Lifetime Learning Credit Expenses
Qualified expenses include tuition and required enrollment fees, including amounts required to be paid to the institution for course-related books, supplies, and equipment. Materials purchased outside the institution do not qualify unless the institution requires payment directly as a condition of enrollment or attendance.
Nonqualifying Expenses
Personal expenses do not qualify for either credit. Room and board, insurance, medical expenses, transportation, and similar personal living expenses cannot be claimed.
Nonacademic fees qualify only if the institution requires payment as a condition of enrollment or attendance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
