Taxes and education
Everyone knows that education costs money and tuition is expensive. However, what everyone doesn’t know is that there are numerous education tax benefits made available by the federal government. Claiming an education tax credit or tax deduction on your tax return can help offset the high cost of education.
Federal education tax benefits include the following:
The American Opportunity Tax Credit is an education tax benefit that allows taxpayers a credit of up to $2,500 if they paid the qualifying educational expenses for an eligible student (for tax year 2009). The eligible student may be themselves, their spouse, or their dependent. This education tax credit can be claimed based on the same student’s expenses for up to four tax years.
The Lifetime Learning Tax Credit is an education tax benefit that allows taxpayers a credit of up to $2,000 for the qualified tuition and educational expenses of a student. This tax credit is nonrefundable and it applies to students at the undergraduate and graduate levels. To qualify, the student must be part of the taxpayer’s family ― either the taxpayer themselves, their spouse, or a dependent ― and enrolled in an eligible educational institution.
The Hope Scholarship Tax Credit is an education tax benefit that allows taxpayers a credit of up to $2,500 (per student, per year) if they paid qualified tuition and related expenses for the first four years of postsecondary education. For tax years 2009 and 2010, the Hope Credit has been expanded and modified by the American Opportunity Tax Credit (as part of the American Recovery and Reinvestment Act of 2009).
The Tuition and Fees Deduction is an education tax benefit that allows taxpayers a tax deduction if they paid the qualified education expenses for an eligible student (themselves, their spouse, or a dependent). It is an above-the-line deduction that may reduce your taxable income by up to $4,000.
The Student Loan Interest Deduction is an education tax benefit that allows taxpayers to deduct up to $2,500 of the interest paid on student loans. This education tax deduction can be claimed on your federal income tax return to reduce your taxable income.