763 / What limitations and phaseouts apply to the Hope Scholarship (American Opportunity) and Lifetime Learning Credits?

The Code sets forth special rules coordinating the interaction of the Hope Scholarship (American Opportunity) and Lifetime Learning Credits. The Lifetime Learning Credit is not available with respect to a student for whom an election is made to take the Hope Scholarship Credit during the same taxable year.¹ However, the taxpayer may use the American Opportunity Credit for one student and the Lifetime Learning Credit for other students in the same taxable year.

Both credits are subject to the same phaseout rules based on the taxpayer’s MAGI. MAGI is the taxpayer’s adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The maximum credit in each case is reduced by the credit multiplied by a ratio. Prior to 2021, for single taxpayers, the ratio equals the excess of (i) the taxpayers’ MAGI over $40,000 to (ii) $10,000. For married taxpayers filing jointly, the ratio equals (a) the excess of the taxpayer’s MAGI over $80,000 to (b) $20,000.² The $40,000 and $80,000 amounts are adjusted for inflation and rounded to the next lowest multiple of $1,000.³

For 2020, the threshold amounts were $59,000 for single taxpayers and $118,000 for married taxpayers filing jointly for the Lifetime Learning Credit. For 2019, the threshold amounts were $58,000 for single taxpayers and $116,000 for married taxpayers filing jointly. For 2018, the threshold amounts were $57,000 for single taxpayers and $114,000 for married taxpayers filing jointly. The threshold amounts for the American Opportunity Credit are $160,000 for married taxpayers filing jointly and $80,000 for single taxpayers for tax years after 2020.