College and Your Taxes
College is expensive, but educational tax benefits can help U.S. students offset the cost of college by reducing their or their parents’ federal tax obligations. Many American families aren’t aware that these programs exist. In fact, the U.S. Government Accounting Office estimates that 14 million eligible families miss out each year. The following are key benefits to be aware of as your child plans for college.
Lifetime Learning Credit
The Lifetime Learning Credit allows American families to claim a tax credit of up to $2,000 on the first $10,000 spent on qualified educational expenses. Qualifying educational expenses include tuition, required fees, course-related books, equipment, and supplies. Expenses for room, board, transportation, and personal needs are not included. There is no limit on the number of years this credit can be claimed, but it cannot be combined with the American Opportunity Tax Credit in the same tax year.
Who’s eligible: Families with a modified adjusted gross income of up to $138,000 are eligible if married and filing jointly. Single, head-of-household, or widowed taxpayers with a modified adjusted gross income of up to $69,000 are eligible.
American Opportunity Tax Credit
The American Opportunity Tax Credit allows parents to claim a tax credit for 100 percent of the first $2,000 and 25 percent of the next $2,000 (or up to $2,500 in total) for tuition, fees, and required course materials paid for students enrolled at least half-time in college. Expenses for room, board, transportation, and personal needs are not included. Up to $1,000 of the credit is refundable, even if you owe no federal income tax. There is a limit of four years of credit per student, and it cannot be claimed in the same year as a Lifetime Learning Credit or the tuition/fees deduction.
Who’s eligible: Families with a modified adjusted gross income of up to $180,000 are eligible if married and filing jointly. Single, head-of-household, or widowed taxpayers with a modified adjusted gross income of up to $90,000 are eligible. The student must be pursuing a degree or a recognized educational credential.
Student Loan Interest Deduction
This tax benefit allows taxpayers to deduct up to $2,500 in interest payments on federal and private student loans used to pay educational expenses. The taxpayer claiming the deduction must be legally obligated to pay the loan. Therefore, parents cannot claim it if they are paying off a student loan taken by the student, but parents can claim it if they have taken a parent PLUS loan or a loan specifically for educational expenses for the student. On the flip side, students may claim the deduction for student loan payments only if their parents are no longer claiming them as a dependent for tax purposes.
Who’s eligible: Families with a modified adjusted gross income of up to $170,000 are eligible if married and filing jointly. Single, head-of-household, or widowed taxpayers with a modified adjusted gross income of up to $85,000 are eligible.
Learn more at the IRS, Tax Benefits for Education Information Center, Tax Benefits for Education: Information Center | Internal Revenue Service (irs.gov)