Tax Benefits
For detailed information on tax benefits for higher education:
You may be able to take advantage of federal tax benefits for education:
American Opportunity/Hope Tax Credit
Under the American Recovery and Reinvestment Act of 2009, more parents and students may qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including those with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
Lifetime Learning Tax Credit
You may be able to claim a federal individual income Lifetime Learning Tax Credit of up to $2,000 for qualified tuition and related expenses per family. The Lifetime Learning Tax Credit reduces the amount of federal income taxes you may have to pay. A taxpayer cannot claim both a Lifetime Learning Credit and an American Opportunity/Hope Credit for the same student in the same year.
Tuition and Fees Tax Deduction and Student Loan Interest Deduction
These deductions allow you to subtract a portion of your tuition and fees from your taxable income and to deduct up to $2,500 of the interest you pay on your student loan each year (or on any student loans you take out for your spouse’s or child’s education).
Most tax benefits have income limits; to learn more about each program, see IRS publication 970, Tax Benefits for Education. Also, be sure to consult a professional tax advisor.
In addition, funds from your IRA, 529 college savings plan or Coverdell Education Savings Account may be withdrawn without a tax penalty to pay for qualified education expenses. There’s also a tax break if you use certain U.S. savings bonds to pay for college.
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