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Wednesday, October 22, 2014

Back to School: Study These College Tax Breaks!

If you or your dependents are attending college this fall, you may be eligible for some help from the government in the form of a tax credit.  Discussed below are the American Opportunity Tax Credit and the more limited Lifetime Learning Credit which are available for qualifying taxpayers who pay tuition and other college expenses for themselves or their dependents.  Also ask your CPA about a deduction for student loan interest paid during the year.  In addition, many states (including New York) offer college tuition credits or deduction from income, as well as tax deductions for contributions to qualified 529 plans.

The American Opportunity Tax Credit

The American Opportunity Tax Credit can be used for multiple eligible students each year, and can be worth up to $2,500 per student.  A portion of the credit is refundable, meaning that even if you owe no tax, you may receive up to $1,000 for each eligible student for whom you submit the credit.  The credit can be claimed for 4 tax years per undergraduate student, as long as the student has not completed the first 4 years of postsecondary education, and the student must be enrolled at least half-time for a minimum of one academic semester for the year.

The American Opportunity Tax Credit includes the following as qualified education expenses; tuition, fees, books, supplies and required course materials.  You can pay for these expenses using cash, credit card or loan proceeds.  Amounts paid for room and board, insurance or student health fees do not qualify.

The American Opportunity Tax Credit is completely phased out for single and head of household filers with modified adjusted gross income (MAGI) over $90,000, and for married taxpayers filing jointly with MAGI over $180,000.  You cannot take the credit if you are married and file separately.

The Lifetime Learning Credit

The Lifetime Learning Credit is limited to a maximum of $2,000 per tax return regardless of how many eligible students qualify for it.   It is not refundable, so you will receive no benefit for it if you have no tax liability.  The credit is available for any post-secondary degree classes or courses taken to improve job skills.

The Lifetime Learning Credit includes only tuition and required course fees in the calculation of the credit.  Books and supplies do not apply.

The Lifetime Learning Credit is completely phased out for single and head of household filers with modified adjusted gross income (MAGI) over $64,000, and for married taxpayers filing jointly with MAGI over $128,000.  You cannot take the credit if you are married and file separately.


Honorine M. Campisi, CPA

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