Oregon Tax Consultants Practice Exam

Which qualified education expense is allowed under both the American Opportunity Credit and the Lifetime Learning Credit?

1. Room and board

2. Tuition fees

3. Medical expenses

4. Transportation costs

The correct answer is: Tuition fees

The correct answer, tuition fees, is allowed as a qualified education expense under both the American Opportunity Credit and the Lifetime Learning Credit because both credits are designed to help offset the cost of higher education. Tuition and fees are direct costs associated with attending an educational institution, and they meet the criteria set by the IRS for both credits. The American Opportunity Credit, specifically for students pursuing a degree or other recognized education credential, covers qualified expenses for the first four years of higher education. Tuition is included because it directly relates to enrollment in courses. The Lifetime Learning Credit, on the other hand, is available for students who are taking classes to acquire or improve job skills and does not have the same restriction on the number of years that it can be claimed. It includes tuition fees as a qualified expense as well, regardless of whether the student is enrolled in a degree program. In contrast, room and board, medical expenses, and transportation costs are not eligible expenses for either of these educational tax credits, as they fall outside the definition of qualified education expenses established by the IRS. Room and board are considered living expenses rather than tuition-related costs, while medical expenses and transportation costs do not directly pertain to the educational services received.