Tax Benefits
You may be able to take advantage of federal tax benefits for education. Most tax benefits have income limits; to learn more about each program, see IRS publication 970, Tax Benefits for Education. Also, be sure to consult a professional tax advisor.
- Hope and Lifetime Learning Tax Credits allow you or your parents to subtract a portion of your college costs from the taxes you owe each year when you file your tax return.
- Tuition and Fees Tax Deduction and Student Loan Interest Deduction allow you to subtract a portion of your tuition and fees from your taxable income and to deduct up to $2,500 of the interest you pay on your student loan each year (or on any student loans you take out for your spouse’s or child’s education).
In addition, funds from your IRA, 529 college savings plan or Coverdell Education Savings Account may be withdrawn without a tax penalty to pay for qualified education expenses. There’s also a tax break if you use certain U.S. savings bonds to pay for college.
Take Advantage of the New American Opportunity Tax Credit
Your family may be eligible to claim a tax credit of up to $2,500 per student. Part of the American Recovery and Reinvestment Act of 2009, this program expands the existing Hope credit to allow taxpayers to claim 100 percent of the first $2,000, plus 25 percent of the next $2,000, of “qualifying expenses,” i.e., tuition, fees and course materials paid during the tax year. That’s $700 more than the Hope credit allows families to claim. Also improving on the Hope credit, the American Opportunity Tax Credit (AOTC) adds books, supplies and equipment to the list of qualifying expenses, and allows the credit to be claimed for four years of postsecondary education instead of two (but keep in mind, the AOTC is only for tax years 2009 and 2010). Even families whose tax liability is less than the credit amount can receive a refund of up to 40 percent of the credit amount they’re eligible to receive (up to $1,000). Taxpayers’ adjusted modified gross income must be $80,000 or less, or $160,000 or less for married couples filing jointly.
Visit www.irs.gov and type “American Opportunity Credit” into the search box for more information, and always consult a tax advisor to determine your individual tax situation.
Learn more about tax benefits for higher education:
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