Instructions for Form 8863 Checklist — Tax Year 2017
Form 8863 is used to claim education credits for qualified tuition and related expenses paid in
2016. The American Opportunity Tax Credit and Lifetime Learning Credit are available to eligible taxpayers who meet specific income, enrollment, and expense requirements.
Verify Student Eligibility and 2016 Enrollment Status
Confirm the student was enrolled at an eligible educational institution during 2016. The institution must be accredited and participate in a student financial aid program administered by the Department of Education.
Document the student's enrollment status for at least one academic period during the year. For the American Opportunity Tax Credit, verify the student was enrolled at least half-time in a program leading to a degree or recognized educational credential.
Ensure the student had not completed four years of post-secondary education before January 1,
2016, and that the American Opportunity Credit or Hope Scholarship Credit had not been claimed for this student for more than three prior tax years. Obtain the institution's Employer
Identification Number from Form 1098-T or the school's website. Confirm the student had not been convicted of a federal felony offense for possessing or distributing a controlled substance as of the end of 2016.
Calculate Your 2016 Modified Adjusted Gross Income
Determine your modified adjusted gross income using the specific worksheet in the 2016 instructions. For 2016, the income phase-out for the American Opportunity Tax Credit begins at
$80,000 for single filers and $160,000 for married filing jointly.
The credit phases out entirely at $90,000 for single filers and $180,000 for married filing jointly.
For the Lifetime Learning Credit, the phase-out ranges are $55,000 to $65,000 for single filers and $111,000 to $131,000 for married filing jointly.
Identify Qualified Expenses Paid in 2016
List only tuition and fees required for enrollment or attendance paid during the 2016 tax year.
For the American Opportunity Tax Credit, qualified education expenses include books, supplies,
and equipment needed for a course of study, whether purchased from the educational institution or not.
For the Lifetime Learning Credit, books, supplies, and equipment qualify only if they must be paid to the institution as a condition of enrollment or attendance. Qualified expenses do not include room and board, insurance, medical expenses, transportation, or other personal living expenses.
Gather Form 1098-T from the educational institution that shows qualified tuition and fees for
2016. Subtract any tax-free educational assistance, including Pell Grant funds and scholarships, from total expenses to determine your adjusted qualified education expenses.
Coordinate Education Credits with Scholarships and
Grants
Tax-free educational assistance reduces the qualified education expenses you can use to calculate an education credit, dollar for dollar. However, you may increase the combined value of an education credit if the student chooses to include some or all of the educational assistance in income.
If a scholarship or fellowship grant may, by its terms, be used for expenses other than qualified education expenses, the student can apply it to non-qualified costs such as room and board.
The student must include that amount in gross income on their tax return.
This approach can free up cash payments to apply toward qualified tuition and related expenses, thereby increasing the available credit. Publication 970 (Tax Benefits for Education)
provides examples of this coordination strategy and explains how it can affect tax liability.
Select the Appropriate Credit Type
Choose the credit for each student by comparing the American Opportunity Tax Credit (up to
$2,500 per eligible student) and the Lifetime Learning Credit (up to $2,000 per tax return).
Eligibility for the American Opportunity Tax Credit depends on the student not having completed four years of post-secondary education as of January 1, 2016.
Graduate-level students are not eligible for the American Opportunity Tax Credit, but they may still qualify for the Lifetime Learning Credit. That credit remains available for all years of post-secondary education and for coursework taken to acquire or improve job-related skills.
Complete Form 8863 Student Information Requirements
Enter the student's name and Social Security number exactly as shown on the Social Security card. A valid taxpayer identification number, individual taxpayer identification number, or adoption taxpayer identification number must be issued by the due date of the return, including extensions. Verify the relationship to the taxpayer in Part II. Confirm the educational institution's name and Employer Identification Number from the Form 1098-T or school documentation.
Only one education credit may be claimed for the same student in the same tax year. Select the credit that provides the greater tax benefit within your modified adjusted gross income limits.
Calculate the Credit Amount with Phase-Out Adjustments
Enter qualified education expenses after subtracting any tax-free scholarships or grants.
Calculate the tentative credit amount using the 2016 worksheets provided in Publication 970.
Apply any modified adjusted gross income phase-out reductions to determine the final allowable credit. For the American Opportunity Tax Credit, the refundable portion is capped at 40% of the credit amount, up to $1,000 per student.
Report Credits and Attach Required Documentation
For 2016 returns, enter the total allowable credit from Form 8863, line 19, on Form 1040, line
50, or Form 1040A, line 33, as applicable. Attach Form 8863 to your return when filing taxes.
Keep records of out-of-pocket expenses paid in 2016 if the institution did not issue Form 1098-T.
Retain proof of student enrollment, modified adjusted gross income calculations, and phase-out worksheets.
Maintain all supporting documentation for at least three years after filing your return. If you receive tax-free educational assistance or a refund after filing, you may need to recapture and repay part of the credit.
Understand Key Restrictions and Coordination Rules
You cannot use the same qualified expenses for both an education credit and the student loan interest deduction. Expenses paid with tax-free assistance from veterans' educational benefits or GI Bill funds reduce your qualified education expenses.
Prepaid expenses for an academic period beginning in the first three months of 2017 may be used to calculate the 2016 credit if the costs were paid in 2016. Review the coordination rules carefully to maximize your total tax benefits across all available education-related deductions and credits.
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