The credit phases out between modified gross incomes of $80,000 to $90,000 for singles, and $160,000 to $180,000 for married couples filing jointly.
If parents cannot take the credit, their children typically can if they have taxable income of their own, Greene-Lewis said. The parents would not then be able to take the dependency exemption of $3,950 for the child, but the value of the credit is often greater than the tax reduction from the exemption, she said.
The Lifetime Learning Credit isn't as valuable but in some ways it's more flexible. It can be taken even for a one-off course, such as one to build job skills. It offsets 20 percent of tuition and certain other required expenses up to $2,000 per tax return. In 2014, the credit phases out for modified adjusted gross incomes between $54,000 and $64,000 for singles, and $108,000 and $128,000 for married couples filing jointly.
Other Deductions
If you can't take either of these credits, you may still be able to use the tuition and fees deduction. This reduces taxable income by a maximum of $4,000 for incomes up to $65,000 for single filers and $130,000 for joint filers, and by up to $2,000 for incomes over $65,000 for singles and $130,000 for joint filers. There's no deduction for incomes over $80,000 for singles and $160,000 for joint filers.
Then there's the deduction for student loan interest, which allows a deduction of up to $2,500. The deduction phases out between $65,000 and $80,000 for singles and between $130,000 and $160,000 for joint filers. You're allowed to take this deduction even if you're claiming one of the other tax breaks.
There are other nuances you need to know, such as which expenses qualify for which credits. For example, the cost of required books is allowed for the Lifetime Learning Credit only if the money was paid directly to the school, Greene-Lewis said.
With the American Opportunity Credit, the cost of books is eligible regardless of where they're bought. Supplies aren't covered at all by the deduction for tuition and fees, which covers just that.
For all the gory details, see IRS Publication 970. You also can use TurboTax's education calculator, which you'll find at https://turbotax.intuit.com/tax-tools/calculators/education/.