Identification

• Before 2009, the Hope credit for undergraduate expenses was the main tax incentive, but there was a $1,650 limit. In 2009, Congress approved the American Opportunity credit -- basically an updated Hope credit -- boosting this limit to $2,500. Also, very low-income families may receive money back if they have no tax obligation. Students in all levels, even graduate school, can claim the nonrefundable lifetime credit of up to $2,000.
  
  

Claiming a Tax Credit

• Students can only receive an education tax credit if nobody else claims them as a dependent on their taxes, according to College Board. If claimed as a dependent on taxes, only the taxpayer declaring the student a dependent may receive a deduction. Also, you can only use one education tax credit per student. Declaring multiple tax credits means you will have to pay back the credit with interest.
  
  

Caveats

• The American Opportunity Credit is only available for four years. The student must incur at least $4,000 in college expenses to claim the full $2,500. The credit begins to phase out once the filer's income reaches $90,000. Also, the student must be enrolled at least half-time -- six credit hours, according to the IRS.
  
  

Deductions

• In addition to tax credits, students have several deductions available to them, often with fewer restrictions than tax credits. You can deduct student loan interest if you make less than $75,000 per year or $150,000 for married filers. If a job requires a class or the class improves your trade, you can deduct tuition and related costs, such as books, as a business expense.