Page 14

educational institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition. An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program ad- ministered by the U.S. Department of Education. The educational institution should be able to tell you if it is an eligible educational institution. Related expenses. Student activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attend- ance. However, expenses for books, supplies, and equip- ment needed for a course of study are included in quali- fied education expenses whether or not the materials are purchased from the educational institution. Prepaid expenses. Qualified education expenses paid in 2021 for an academic period that begins in the first 3 months of 2022 can be used in figuring an education credit for 2021 only. See Academic period, earlier. For ex- ample, if you pay $2,000 in December 2021 for qualified tuition for the 2022 winter quarter that begins in January 2022, you can use that $2,000 in figuring an education credit for 2021 only (if you meet all the other require- ments). You can't use any amount you paid in 2020 or 2022 to figure the qualified education expenses you use to figure your 2021 education credit(s). In the following examples, assume that each student is an eligible student at an eligible educational institution. Example 1. Jefferson is a sophomore in University V's degree program in dentistry. This year, in addition to tui- tion, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental is needed for his course of study, Jefferson's equipment rental fee is a qualified ex- pense. Example 2. Grace and William, both first-year stu- dents 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 re- ceive 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. Example 3. When Kelly enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. This activity fee is required of all students, and is used solely to fund on-campus organi- zations and activities run by students, such as the student newspaper and the student government. No portion of the TIP CAUTION ! fee covers personal expenses. Although labeled as a stu- dent activity fee, the fee is required for Kelly's enrollment and attendance at College X and is a qualified expense. No Double Benefit Allowed You can't do any of the following. • Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an American opportunity credit based on those same expenses. • Claim an American opportunity credit for any student and use any of that student's expenses in figuring your lifetime learning credit. • Figure the tax-free portion of a distribution from a Cov- erdell education savings account (ESA) or qualified tuition program (QTP) using the same expenses you used to figure the American opportunity credit. See Coordination With American Opportunity and Lifetime Learning Credits in chapter 6 and Coordination With American Opportunity and Lifetime Learning Credits in chapter 7. • Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an em- ployer. See Adjustments to Qualified Education Ex- penses next. Adjustments to Qualified Education Expenses For each student, reduce the qualified education expen- ses paid by or on behalf of that student under the follow- ing rules. The result is the amount of adjusted qualified education expenses for each student. Tax-free educational assistance. For tax-free educa- tional assistance received in 2021, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period, earlier. Some tax-free educational assistance received after 2021 may be treated as a refund of qualified education ex- penses paid in 2021. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2021 for qualified education expenses paid on behalf of a student in 2021 (or attributable to en- rollment at an eligible educational institution during 2021). If this tax-free educational assistance is received after 2021 but before you file your 2021 income tax return, see Refunds received after 2021 but before your income tax return is filed, later. If this tax-free educational assistance is received after 2021 and after you file your 2021 income tax return, see Refunds received after 2021 and after your income tax return is filed, later. Tax-free educational assistance includes: • The tax-free parts of scholarships and fellowship grants (see Tax-Free Scholarships and Fellowship Grants in chapter 1); Page 14 Chapter 2 American Opportunity Credit