If you or your dependent is going to college this Fall, you may be eligible for some significant tax credits or deductions. Here are the IRS Rules for Education Expenses, that would apply to you, your spouse or your tax dependent:
- American Opportunity Credit This credit, originally
created under the American Recovery and Reinvestment Act, has been extended for
an additional two years – 2011 and 2012. The credit can be up to $2,500 per
eligible student and is available for the first four years of post secondary
education. Forty percent of this credit is refundable, which means that you may
be able to receive up to $1,000, even if you owe no taxes. Qualified expenses
include tuition and fees, course related books, supplies and equipment. The full
credit is generally available to eligible taxpayers whose modified adjusted
gross income is below $80,000 ($160,000 for married couples filing a joint
- Lifetime Learning Credit In 2011, you may be able to claim
a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid
for a student enrolled in eligible educational institutions. There is no limit
on the number of years you can claim the Lifetime Learning Credit for an
eligible student, but to claim the credit, your modified adjusted gross income
must be below $60,000 ($120,000 if married filing jointly).
- Tuition and Fees Deduction This deduction can reduce the
amount of your income subject to tax by up to $4,000 for 2011 even if you do not
itemize your deductions. Generally, you can claim the tuition and fees deduction
for qualified higher education expenses for an eligible student if your modified
adjusted gross income is below $80,000 ($160,000 if married filing jointly).
- Student loan interest deduction Generally, personal
interest you pay, other than certain mortgage interest, is not deductible.
However, if your modified adjusted gross income is less than $75,000 ($150,000
if filing a joint return), you may be able to deduct interest paid on a student
loan used for higher education during the year. It can reduce the amount of your
income subject to tax by up to $2,500, even if you don’t itemize deductions.
For each student, you can choose to claim only one of the credits in a single
tax year. However, if you pay college expenses for two or more students in the
same year, you can choose to take credits on a per-student, per-year basis. You
can claim the American Opportunity Credit for your sophomore daughter and the
Lifetime Learning Credit for your senior son.
You cannot claim the tuition and fees deduction for the same student in the
same year that you claim the American Opportunity Credit or the Lifetime
Learning Credit. You must choose to either take the credit or the deduction and
should consider which is more beneficial for you.