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From Elev8.com:

For many years, two popular tax credits, the Hope credit and the Lifetime Learning credit, helped students and their parents recoup some of their education expenses. For the 2009 and 2010 tax years, the new American Opportunity credit joins the educational tax break list and offers even more help for more taxpayers.

The key part of the educational assistance remains the same in all cases. The tax breaks are credits rather than deductions, so they take a bigger bite out of your tax bill.

American Opportunity credit

The American Opportunity credit was created as part of the 2009 stimulus bill. For 2009 and 2010, it replaces for most taxpayers the Hope credit.

The American Opportunity credit is worth $2,500, whereas claiming the Hope could get you at most $1,800. Also with the new credit, you can include expenses paid during the first four years of post-secondary education in figuring the new credit. Best of all, up to 40 percent of the new credit is refundable, meaning you could get up to $1,000 back as a refund even if you don’t owe any taxes.

There are income limits on who can claim the American Opportunity credit, but they are greater than were those associated with the Hope credit. Now you can earn up to $80,000 if you’re a single filer, twice that if married filing jointly, and still claim the full American Opportunity credit. A reduced credit amount is available for single filers who earn up to $90,000 and joint filers making up to $180,000.

Lifetime Learning credit

The Lifetime Learning credit is exactly that. It can be used for undergraduate, graduate and professional degree courses for anyone.

This means a qualifying course you took to improve your current job skills or get new work could be partially paid for by the tax credit.

If you meet all the Internal Revenue Service guidelines, you can count $10,000 of your education expenses. If you have a child also going to college and that child has eligible expenses, you can count those toward the $10,000 total, too, since the credit can be applied to all qualified education expenses in a taxpayer’s family.

These costs, however, don’t translate directly to your tax break. Rather, you get to claim up to 20 percent of your eligible Lifetime Learning expenses, which could net you a maximum $2,000 credit.

Hope Credit

The Hope applies to course-work costs spent in a student’s first two years of higher education. The schooling can be at a college or vocational school, as long as the work at the institution leads to a degree or certification. The student also must be enrolled at least half time for at least one academic period beginning during the year. Under that law, the Hope credit could be worth up to $3,600.