Tax - How to determine whether what ED deduction (or credit) to use?

[roderick]

<p>found this which explains what it means to be ‘refundable’ - a taxpayer can get back in the form of a refund.</p>

<p>[American</a> Opportunity Tax Credit - Federal tax credit of up to $2,500 for undergraduate education](<a href=“http://taxes.about.com/od/deductionscredits/qt/American-Opportunity-Tax-Credit.htm]American”>What To Know About the American Opportunity Tax Credit)</p>

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Up to 40% of the American Opportunity credit is refundable. That means up to $1,000 of the American Opportunity credit can be refunded to you, even if your tax liability is zero. This makes the American Opportunity credit potentially more valuable than the Lifetime Learning credit, which is non-refundable. </p>

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<p>For me, the tool generated $1,000 for line 43, AO credit amt. If the max amt that can be refunded is $1,000, then why even say that it goes up to $2,500?</p>