4 Tax Breaks For College Education Expenses

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Paying for a college education is becoming increasingly difficult for many prospective students and their families. The rising costs of tuition combined with a souring national economy have many people concerned about how to afford paying for college. What many people do not know is that the federal tax code offers numerous tax breaks to students to help offset the costs of a college education. While none of these tax breaks will make a significant dent in the total costs of college, they can help to lessen the financial blow to students and their families.

Here are four tax breaks that students or their parents can take advantage of to help pay for their higher education.

1.The American Opportunity Tax Credit

What It Is: This tax credit allows for a dollar-for-dollar tax offset of up to $2,500 per year for students enrolled at an undergraduate institution. A student can benefit from this tax break for up to four years. Up to $1,000 of the credit is refundable. This means that if your tax credit is larger than your tax liability at the end of the year, you can receive a check from the federal government for the difference up to $1,000.

Stipulations

  • The student must be enrolled at least part time in a degree granting program at an undergraduate institution. Graduate education is not eligible.
  • The credit can be used for tuition payments, the purchase of books and school supplies and other school related expenses.
  • Expenses that do not qualify include room and board, transportation costs, insurance and medical expenses.
  • Students with felony drug convictions are not eligible for the tax credit

Income Eligibility

  • Individuals whose adjusted gross income is $80,000 or less or joint filers whose adjusted gross income is $160,000 or less can qualify for the full credit
  • Individuals whose adjusted gross income is less than $90,000 or joint filers whose adjusted gross income is less than $180,000 can qualify for a partial tax credit
  • Individuals in higher income brackets are not eligible for the tax credit

2.The Lifetime Learning Credit

What It Is: This tax credit allows for a dollar-for-dollar tax offset of up to $2,000 per year per family. There is no limit on the number of years a student can claim this tax credit. This credit is not refundable. This means that it can eliminate your tax liability, but you will not receive a check for any excess funds.

Stipulations

  • This credit can be used for both undergraduate and graduate education. It can also be used for courses to acquire or improve job skills. The student does not need to be pursuing a degree or academic credential.
  • The credit can be used for tuition payments, the purchase of books and school supplies and other school related expenses.
  • Expenses that do not qualify include room and board, transportation costs, insurance and medical expenses.
  • There is no restriction on students with felony drug convictions.

Income Eligibility

  • Individuals whose adjusted gross income is less than $60,000 or joint filers whose adjusted gross income is less than $120,000 can qualify for the full credit.
  • Individuals in higher income brackets are not eligible for the tax credit

3.The Student Loan Interest Deduction

What It Is: This allows you to deduct the interest you pay on a qualified student loan up to $2,500.

Stipulations

  • A qualified student loan is a loan in which all of the loan proceeds are used for tuition, room and board, transportation and other qualified education related expenses.
  • The student must be enrolled at least part time in a degree grating program at an undergraduate or graduate institution.

Income Eligibility

  • Individuals whose adjusted gross income is less than $75,000 or joint filers whose adjusted gross income is less than $150,000 can qualify for the deduction.

4.The Tuition And Fees Deduction

What It Is: This allows you to deduct up to $4,000 from your income used for student tuition and fee expenses.

Stipulations

  • This deduction can be used for tuition and fees to both undergraduate and graduate institutions.
  • Expenses that do not qualify include insurance, medical expenses, room and board and transportation expenses.

Income Eligibility

  • Individuals whose adjusted gross income is $80,000 or less or joint filers whose adjusted gross income is $160,000 or less can qualify for this deduction.

No Double Dipping

It is important to note that many of these tax breaks do not allow double dipping. This means that you cannot take advantage of multiple tax breaks for the same expenses. For example, you cannot claim the American Opportunity Credit and the Lifetime Learning Credit for the same student. However, if you have two children and are paying for both of their college educations, you can claim the American Opportunity Credit for one and the Lifetime Learning Credit for the other.

Paying for college can be daunting. However, these tax breaks can help you to reduce your financial burden.

Sources

Last Updated: March 26, 2012
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About Michael Diaz Michael Diaz is a contributing author for CanDoFinance.com.

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