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Appendices The following appendices are provided to help you claim the education bene- fits that will give you the lowest tax. 1. Appendix A—An illustrated exam- ple of education credits, including a filled-in Form 8863 showing how to claim both the American oppor- tunity credit and the lifetime learn- ing credit for 2021. 2. Appendix B—A chart summariz- ing some of the major differences between the education tax benefits discussed in this publication. It is intended only as a guide. Look in this publication for more complete information. Appendix A. Illustrated Example of Education Credits Dave and Valerie Jones are married and, on their 2021 joint tax return, they claim their two dependent children, Sean (age 22, social security number: 000-00-0001) and Carey (age 18, so- cial security number: 000-00-0002). Their modified adjusted gross income (MAGI) on Form 1040, line 11, is $130,000. Because Dave and Valerie have unusually high itemized deduc- tions, their taxable income is $10,000 and their tax before credits is $1,003. Sean enrolled as a full-time gradu- ate student in August 2021 at Califor- nia State College. He graduated with his bachelor's degree in 2020 and didn't attend school from January 2021 through July 2021. His parents claimed the American opportunity credit for Sean for 2017, 2018, 2019, and 2020. Carey enrolled full time as a fresh- man at the same college in January 2021 to begin working on her bache- lor's degree. In 2021, Dave and Valerie paid $7,000 in tuition for Sean and $8,000 in tuition and $500 for mandatory course materials, not purchased from the col- lege, for Carey. Carey received a $2,000 scholarship. California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Jone- ses’ residence. The $2,000 scholar- ship that Carey received is reported in box 5 of her Form 1098-T. In complet- ing Form 8863, the Joneses should in- clude actual adjusted qualified educa- tion expenses paid, or deemed to have been paid, which may be different from what is reported on Form 1098-T. Therefore, the Joneses use the amounts they paid for tuition and man- datory course materials. Because the scholarship Carey received was ap- plied to tuition (a qualified expense), they don't include that in the amount they paid for qualified tuition expenses. Neither Sean nor Carey has been con- victed of a felony for possession or dis- tribution of a controlled substance be- fore the end of 2021. Dave and Valerie figure their educa- tion credits by completing Form 8863. They begin Form 8863 on page 2 be- fore completing Part I on page 1. Be- cause the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. The Joneses decide to complete Part III for Carey first, as shown later. They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. The Joneses complete a separate Part III for Sean. They check the “Yes” box on line 23, determine that Sean isn't eligible for the American opportu- nity credit, and go to line 31 as instruc- ted. They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Once they have completed Part III for each student, they figure their cred- its. The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. They enter the amount from line 8, $1,000, on line 29 of their Form 1040. The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2021 to be $1,400 (line 12). They can claim the full amount because their MAGI of $130,000 is less than $160,000. They enter $1,400 (figured on Part II, line 18) on line 1 of the Credit Limit Worksheet. The $1,400 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,900. The Joneses enter $1,003 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 18 of their Form 1040 (which is $1,003) or the $2,900 on line 3 of the Credit Limit Worksheet. They enter $1,003 on Form 8863, Part II, line 19, and on Schedule 3 (Form 1040), line 3. Page 72 Publication 970 (2021)