Understanding program optimization for the Tuition and Fees Deduction vs. education credits

This article will assist you with understanding how ProConnect Tax optimizes between the following credits and deduction:

• The Lifetime Learning Credit
• The American Opportunity Credit
• The Tuition and Fees Deduction

For tax year 2021:

• Tuition and Fees Deduction (Form 8917) has been repealed starting in Tax Year 2021.
• American Opportunity Credit & Lifetime Learning Credit (Form 8863) changes:
  • Expanded Lifetime Learning Credit to phase outs that mirror American Opportunity Credit in 2021
  • MAGI phase out range --$160,000 --$180,000 married filing joint; $80,000 --$90,000 other filers

How does the program optimize between the Tuition and Fees Deduction and education credits for tax year 2021?

When ProConnect optimizes between the Education Credit (Form 8863), it looks at a few factors:

• If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the Lifetime Learning Credit (LLC).
• If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the American Opportunity Credit.

ProConnect Tax will calculate both scenarios and ask, "Which will result in a lower tax liability?"

How does the program optimize between the Tuition and Fees Deduction and education credits for tax year 2020?

When ProConnect optimizes between the Tuition and Fees Deduction (Form 8917) and the Education Credit (Form 8863), it looks at a few factors:

• If the taxpayer's MAGI exceeds $138,000 for MFJ, or $69,000 for S, MFS, or QW, then they can't take the Lifetime Learning Credit (LLC).
• If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the American Opportunity Credit.
• If the taxpayer's MAGI exceeds $160,000 for MFJ, or $80,000 for S, MFS, or QW, then they can't take the Tuition and Fees Deduction.

ProConnect Tax will calculate both scenarios and ask, "Which will result in a lower tax liability?"

Follow these steps to force the credit or deduction in tax year 2020 and prior:

1. Go to the Input Return tab.
2. From the left of the screen, select Credits and choose  Education/ Tuition (1098-T, 8863, 8917).
3. Locate the Persons and Expenses Qualifying for Education Credits or Tuition Deduction (1098-T) section.
4. Scroll down to the Current Year Expenses subsection.
5.  Enter a 1 or 2 in the field labeled Blank=optimize, 1=force credit, 2=force tuition deduction.
   • This will force the program to calculate either Form 8917 or 8863 and show if the taxpayer does or doesn't qualify.

Related topics

• Entering amounts in Form 1098-T and generating Form 8863 in ProConnect
• Why won't ProConnect Tax calculate the education credit or tuition deduction?
• Entering amounts from Form 1098 and 1099 in ProConnect Tax