Qualified education expenses for education credits, such as the American Opportunity Credit and Lifetime Learning Credit, are generally amounts paid in 2025 for tuition and fees required for a student’s enrollment or attendance at an eligible educational institution. These expenses can be paid in cash, by check, credit or debit card, or with borrowed funds.
Types of Qualified Expenses
- Tuition and Fees: Required for enrollment or attendance at an eligible educational institution.
- Course Materials:
- American Opportunity Credit: Includes books, supplies, and equipment needed for a course of study, regardless of whether purchased from the institution.
- Lifetime Learning Credit: Includes books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance.
- Nonacademic Fees: Such as student activity fees or athletic fees, only if required to be paid to the institution as a condition of enrollment or attendance.
Expenses That Are NOT Qualified
- Personal expenses: Room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses.
- Courses involving sports, games, hobbies, or noncredit courses — unless part of a degree program (American Opportunity Credit) or help improve job skills (Lifetime Learning Credit).
Prepaid Expenses
Qualified education expenses paid in 2025 for an academic period that begins in the first 3 months of 2026 can be used to figure an education credit for 2025. However, payments made in 2024 or 2026 cannot be used for the 2025 credit.
Adjustments to Qualified Expenses
- Tax-free educational assistance (e.g., scholarships, grants) received in 2025 or before filing the 2025 return must reduce qualified expenses.
- Refunds of qualified education expenses paid in 2025 must also reduce qualified expenses.
Third-Party Payments
Expenses paid by someone other than the student (e.g., a relative) are treated as paid by the student. If the student is claimed as a dependent on your tax return, expenses paid by the student are treated as paid by you.
Credit Recapture
If tax-free educational assistance or a refund is received after filing your 2025 tax return, you must recapture (repay) any excess credit by refiguring your credit based on reduced expenses.
Source:
Form 8863 Instructions (2025)
Disclaimer: Always verify details with the current IRS Form 8863 instructions and relevant IRS publications (such as Pub. 970). Tax rules may vary by state and individual circumstances. For complex situations, consult a tax professional or CPA.