Students and those paying education expenses for students may be aware that tax breaks exist for college education expenses.  There are three common tax breaks provided by the federal government; the Hope Education Credit, the Lifetime Learning Credit, and the deduction on student loan interest

Both the hope credit and the lifetime learning credit have similar provisions.  Each can be taken only on qualified tuition and related expenses.  This includes tuition and other expenses that are required for enrollment at the institution.  All costs associated with room and board, insurance, transportation, and medical expenses do not qualify.  A taxpayer cannot take both credits for one student in the same year, but can take both or either of the credits for different students.  The credits are phased out for high income taxpayers at an AGI of $47,000 for single filers, and $87,000 for married filing jointly.

            This credit can only be claimed for the first two years of post secondary education for each eligible student.  The credit is equal to 100% of the first $1,000 of qualified tuition and expenses paid, and 50% of the next $1,000 paid, for a maximum deduction of $1,500.  The student must carry at least half the normal full-time workload, and be enrolled at an eligible post-secondary institute.  This credit can be taken for each eligible student claimed on the taxpayer’s return.

            The taxpayer can claim a maximum of $2,000 per return, not per student, with this credit.  The credit is calculated by taking 20% of up to $10,000 of the total qualified tuition and expenses per return.  This credit is available to students who carry less than half a full workload.  Also, there is no limit to the number of years this credit can be claimed.

Student Loan Interest

            Individuals who have taken out loans to pay the cost of higher education for themselves, their spouses, or their dependents can deduct the interest they pay on these loans.  This is an “above-the-line” deduction, meaning a taxpayer does not have to itemize in order to take advantage of it.  The maximum deduction allowed is $2,500 each year, and only taxpayers legally obligated to make the debt payments may claim the deduction.

Please consult our tax professionals for assistance on this or any other matter.