Federal Education Tax Benefits

When students and families file their taxes every year, they can claim eligible education expenses to take advantage of the available education tax credits and deductions. It is important to understand what differentiates a tax credit from a deduction. Specifically, a tax credit reduces the amount of taxes you owe. A deduction, on the other hand, reduces the income amount used to determine your taxes. Below you will find an overview of each tax credit and deduction. You can also refer to IRS Publication 970 Tax Benefits for Education for more specifics on these benefits. The IRS also provides the IRS Interactive Tax Assistant (ITA) so you can check your eligibility online.

Coordinating various educational aid and benefits to maximize your college cost savings is complex. It is best to consult both a tax professional and a financial planner well-versed in college planning.

American Opportunity Credit

The American Opportunity Credit can reduce your taxes up to $2,500 for eligible education expenses and can be claimed for each student. This is only available for students in their first 4 years of college. If there is an unused portion of the credit then up to 40% of the credit may be refunded to you. The amount of the American Opportunity Credit is always larger than the Lifetime Learning Credit.

Eligible Education Expenses

Eligible expenses are tuition, mandatory fees, and mandatory course-related materials (fees, books, supplies, and equipment).

MAGI and Phaseout Limits

For single taxpayers with a MAGI of $90,000 or higher then they do not qualify for the credit. If their MAGI is between $80,000 and $90,000 then their credit will be reduced. Finally, if their MAGI is under $80,000 then they qualify for the full amount of the credit.

For married taxpayers filing jointly with a MAGI of $180,000 or higher then they do not qualify for the credit. If their MAGI is between $160,000 and $180,000 then their credit will be reduced. Finally, if their MAGI is under $160,000 then they qualify for the full amount of the credit.

Per Student Basis

For the same student, the American Opportunity Credit cannot be used in conjunction with the Lifetime Learning Credit or the Tuition and Fees Deduction.

Lifetime Learning Credit

The Lifetime Learning Credit can reduce your taxes up to $2,000 for eligible education expenses. The credit can only be claimed for one tax return, not for each student like the American Opportunity Credit. This credit can be claimed for an unlimited number of years and any unused credit is not refundable.

Eligible Education Expenses

Eligible expenses are tuition, mandatory fees, and mandatory course-related materials (fees, books, supplies, and equipment).

MAGI and Phaseout Limits

For single taxpayers with a MAGI of $65,000 or higher then they do not qualify for the credit. If their MAGI is between $55,000 and $65,000 then their credit will be reduced. Finally, if their MAGI is under $55,000 then they qualify for the full amount of the credit.

For married taxpayers filing jointly with a MAGI of $130,000 or higher then they do not qualify for the credit. If their MAGI is between $110,000 and $130,000 then their credit will be reduced. Finally, if their MAGI is under $110,000 then they qualify for the full amount of the credit.

Per Student Basis

For the same student, the Lifetime Learning Credit cannot be used in conjunction with the American Opportunity Credit or the Tuition and Fees Deduction.

Student Loan Interest Deduction

The Student Loan Interest Deduction can reduce your taxable income up to $2,500 for loan interest and origination fees used to pay for eligible education expenses. This deduction can be claimed for the lifetime of the loan repayment period.

Eligible Education Expenses

Eligible expenses are loan interest (and origination fees) for loans used to pay for tuition, mandatory fees, mandatory course-related materials (fees, books, supplies, and equipment), and transportation.

MAGI and Phaseout Limits

For single taxpayers with a MAGI of $80,000 or higher then they do not qualify for the deduction. If their MAGI is between $65,000 and $80,000 then their deduction will be reduced. Finally, if their MAGI is under $65,000 then they qualify for the full amount of the deduction.

For married taxpayers filing jointly with a MAGI of $160,000 or higher then they do not qualify for the deduction. If their MAGI is between $130,000 and $160,000 then their deduction will be reduced. Finally, if their MAGI is under $130,000 then they qualify for the full amount of the deduction.

Tuition and Fees Deduction

The Tuition and Fees Deduction can reduce your taxable income up to $4,000 for eligible education expenses. This deduction can be claimed for an unlimited number of years.

Eligible Education Expenses

Eligible expenses are tuition and mandatory fees. Unlike the other tax credits and deductions, this deduction does not cover mandatory course-related materials (fees, books, supplies, and equipment).

MAGI and Phaseout Limits

For single taxpayers with a MAGI of $80,000 or higher then they do not qualify for the deduction. If their MAGI is between $60,000 and $80,0000 then their deduction will be reduced. Finally, if their MAGI is under $60,000 then they qualify for the full amount of the deduction.

For married taxpayers filing jointly with a MAGI of $160,000 or higher then they do not qualify for the deduction. If their MAGI is between $130,000 and $160,000 then their deduction will be reduced. Finally, if their MAGI is under $130,000 then they qualify for the full amount of the deduction.

Per Student Basis

For the same student, the Tuition and Fees Deduction cannot be used in conjunction with the American Opportunity Credit or the Lifetime Learning Credit.



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