Tips for Students and Parents Paying College Expenses
Whether you are a recent high school graduate going to college for the first time or a returning student, it is likely that you have headed back to campus, and payment deadlines for tuition and other fees are not far off.
Here are some tips about education tax benefits that can help lessen the impact of ever increasing college costs for students and parents. Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return. Keep in mind the:
- American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post-secondary education at an eligible institution. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you do not owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
- Lifetime Learning Credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.
You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.
- Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you do not itemize deductions.
These education benefits are subject to income limitations, and may be reduced or eliminated depending on your income. If you would like to know how much one of these tax benefits can help you reduce your overall collegiate costs, please contact us.