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• Who is an eligible student, • Who can claim a dependent's expenses, • How to figure the credit, • How to claim the credit, and • When the credit must be repaid. What is the tax benefit of the American opportunity credit? For 2021, you may be able to claim a credit of up to $2,500 for adjusted qualified education expenses paid for each student who qualifies for the American opportu- nity credit. A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Forty percent of the American opportunity credit may be refundable. This means that if the refunda- ble portion of your credit is more than your tax, the excess will be refunded to you. Your allowable American opportunity credit may be limited by the amount of your income. Also, the nonre- fundable part of the credit may be limited by the amount of your tax. Overview of the American opportunity credit for 2021. See Table 2-1 for the basics of this credit. The de- tails are discussed in this chapter. Can you claim more than one education credit this year? For each student, you can elect for any year only one of the credits. For example, if you elect to claim the American opportunity credit for a dependent on your 2021 tax return, you can't use that same dependent's qualified education expenses to figure the lifetime learning credit for 2021. If you pay qualified education expenses for more than one student in the same year, you can choose to claim the American opportunity credit on a per-student, per-year ba- sis. If you pay qualified education expenses for a student (or students) for whom you don't claim the American op- portunity credit, you can use the adjusted qualified educa- tion expenses of that student (or those students) in figur- ing your lifetime learning credit. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Differences between the American opportunity and lifetime learning credits. There are several differences between these two credits. For example, you can claim the American opportunity credit based on the same stu- dent's expenses for no more than 4 tax years. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same stu- dent's expenses. The differences between these credits are shown in Appendix B near the end of this publication. If you claim the American opportunity credit for any student, you can choose between using that student's adjusted qualified education expenses for the American opportunity credit or the lifetime learning credit. If you have the choice, the American opportunity credit will always be greater than the lifetime learning credit. Form 8862 may be required. If your American opportu- nity credit was denied or reduced for any reason other than a math or clerical error for any tax year beginning af- ter 2015, you must attach a completed Form 8862 to your tax return for the next tax year for which you claim the credit. See Form 8862 and its instructions for details. Don't claim the American opportunity credit for 2 years after there was a final determination that your claim was due to reckless or intentional dis- regard of the rules, or 10 years after there was a final de- termination that your claim was due to fraud. TIP CAUTION ! Page 10 Chapter 2 American Opportunity Credit