The tax code provides two higher-education credits under IRC §25A: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLTC). High-income filers are generally ineligible due to income phase-outs, but you must understand the coordination rules to avoid penalties.
Provides a tax credit of up to $2,500 per year per student for the first four years of post-secondary education, calculated as 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. In 2026, eligibility phases out between $80,000–$90,000 MAGI for single filers and $160,000–$180,000 MFJ. The phase-out thresholds are not adjusted for inflation.
Provides a nonrefundable credit of up to $2,000 per tax return (20% of the first $10,000 of qualified expenses) for any post-secondary or continuing education. In 2026, the phase-out thresholds are indexed and share the same caps as the AOTC.
Under IRC §25A(g)(2), you cannot use the same dollar of qualified educational expense to claim an education tax credit and a tax-free 529 distribution. If you qualify for the AOTC, allocate the first $4,000 of tuition and fees to the credit (paid from taxable cash), and fund all residual qualified expenses from the 529.
If a student is self-supporting and no longer claimed as a dependent, the student can claim the AOTC on their own return. For high-income parents who are phased out, declining to claim the student as a dependent can allow the student to secure the $2,500 credit, netting a family-wide tax savings.