College is an important investment, but it’s also an expensive one. Education tax credits and deductions are designed to help make education more affordable for all students. When you file your taxes this year, make sure you understand which tax breaks might benefit you. If you receive a tax refund, consider using it to make a payment toward your education or your loans, helping to reduce potential debt when you graduate.
Here are some of the credits and deductions that might benefit you.
American Opportunity Credit: This tax credit allows students to deduct up to $2,500 of qualified expenses for up to four consecutive years. Qualified expenses include tuition, books, course materials and related fees. Eligibility requirements for this credit include the following:
• You must be in your first four years of college. You don't qualify if you've gone back to school for a second degree or you are in graduate school.
• You must make less than $80,000 if you are single; you and your spouse cannot make more than $160,000 together if you file joint tax returns.
• You must have qualified expenses such as tuition or books. If you don't pay tuition yourself, you can't claim it.
• You can only claim up to $2,500 in expenses per year.
Up to $1,000 of this credit is refundable, which means that you can get this amount back at tax time if you don't owe any tax.
Lifetime Learning Credit: If you don't qualify for the American Opportunity Credit, you may qualify for the Lifetime Learning Credit. This credit is available to anyone who is enrolled in a college-level course, regardless of how many years they've been in school or how long they've been studying.
This credit is similar to the American Opportunity Credit. You can claim up to $2,000 on tuition, books and related expenses. In order to qualify, you must make less than $60,000 as a single taxpayer. Married couples who file jointly can earn up to $120,000 together.
Tuition and Fees Deduction: As of 2013, students can deduct up to $4,000 in tuition and related expenses on their tax returns. You can't take this deduction if you take a tax credit for educational expenses, so it's important to compare the benefits and decide what is best for you. In order to qualify, you must make less than $80,000 as a single taxpayer or $160,000 as a married couple.
Student Loan Interest Deduction: If you pay any interest on student loans, you can take a deduction of up to $2,500. All taxpayers who pay student loans qualify for this deduction, and you can take it regardless of the other credits or deductions you claim.