4 Education-Related Tax Deductions and Credits For College Tuition & Expenses

Unless you were born with a silver spoon in your mouth or a jump shot that rivals Lebron James, your college education is going to cost you. A lot. In fact, according to the U.S. Department of Education, most college seniors graduate with an average of $28,186 in student loan debt alone. Want to alleviate some of the financial burden? Check out these four tax credits and deductions that can save you bundles come April 15th. 1. American Opportunity Credit : Up to $2,500 tax credit per student, 4 years maximum per student To claim this credit, you must be paying educational expenses, either for yourself or one of your dependents, at an accredited institution for a term that began either in 2010 or will begin in January, February, or March 2011. Expenses include tuition, required fees, college text books and other class supplies. You can only claim this expense for the first 4 years of the student’s postsecondary education. The student must be enrolled at least half time and have no felony drug convictions. You can only claim one credit per student per year. If you have multiple students, you can take this credit once each year for each of them, and four times in a row for each student. Your MAGI (modified adjusted gross income) must be under $90,000 if filing single or head of household, and $180.000 if married filing jointly. You can’t claim this credit if you are filing as married filing separately. If you are due a refund, you can get up to 40% of this credit refunded to you even if you do not have any taxes due. So if you have an income small enough that you do not owe any taxes, taking this credit would add a maximum of $1,000 to your refund. 2.  Lifetime Learning Credit : Up to $2,000 tax credit per return indefinitely The Lifetime Learning Credit allows you to get a tax credit for tuition, fees, required books and supplies for classes taken at any qualified educational institution. Importantly, this tax credit does NOT have a limit on the number of years that it can be taken. If you continue to have eligible expenses, you can take this credit each year indefinitely. The student does NOT need to be enrolled in a degree-seeking program, and does not need to be half time – you can get this credit for a single class. You can deduct expenses paid for yourself, your spouse, or any of your dependents. This credit is NOT refundable – you can only get your tax burden reduced with this credit, and you cannot get a benefit beyond the amount of taxes you owe. So if your income is low enough that you do not pay any taxes at all, you would not get any benefit from this credit. The $2,000 maximum benefit covers all expenses paid for yourself, your spouse, or your dependents. If more than one person is taking classes, you may get more benefit from the American Opportunity Credit. Your MAGI must be under $60,000 if filing single or head of household, and $120,000 if married filing jointly. You cannot claim it if you are filing as married filing separately. Students may have had a felony drug conviction in the past. 3.  Tuition and Fees Deduction : Up to $4,000 tax deduction per return The tuition and fees deduction allows you to take up to $4,000 off your taxable income per year. You can deduct tuition, fees, and required expenses paid to qualified educational institutions, and you do not have to itemize your deductions to get this benefit. The expenses must be paid for you, your spouse, or your dependent.  There is no limit on how many years you can take this deduction. Your MAGI must be $80,000 or below if single or head of household, and $160,000 or below if married filing jointly. You cannot take this deduction if you are filing as married filing separately. You are limited to a deduction of $4,000 even if you have multiple students in the family. 4.  Student Loan Interest Deduction – Up to $2,500 tax deduction per return You can deduct up to $2,500 for any interest you paid during the year on qualifying student loans. These can be loans that you took out for yourself, your spouse, or your dependents. You cannot deduct interest on loans you are not paying – whoever pays the interest gets the deduction, so if your student had you co-sign for a loan, but they are paying it, they get to take the deduction. You cannot deduct interest on a loan made to you by a relative or your employer. The loan must have been used to pay for tuition, fees, books, or housing expenses. Housing expenses qualify only up to the actual cost of housing and meals at the university, or an amount determined by the educational institution that was included in the federal financial aid determination. (If the student took out extra loans to cover a higher housing expense than what was set as the allowance by the institution, those amounts are not eligible.) The determination of eligibility of an institution is made only at the time that the loans are taken out – if they subsequently lose eligibility, it doesn’t affect whether you can deduct the loan interest. You can also deduct loan origination fees at the time the loan was made, and you can deduct credit card interest if the credit card is used solely for eligible academic expenses. More Details & Requirements: You can claim a credit or deduction even if you actually paid the expenses with a loan (unless this was tax-free assistance such as a Pell grant, employer tuition reimbursement program , or similar assistance.) Even if the student withdraws from classes, you can still take the credit for any expenses that were not reimbursed. You cannot deduct the cost of housing or meal plans. You cannot take an education-related credit or deduction if you are claimed as a dependent on someone else’s return. You can take a credit or deduction for expenses you paid for academic periods anytime in 2010 or the first three months of 2011 (for example, if you are paying now for spring semester). You can use only ONE of the above mentioned programs for the same expenses. If you take a tax deduction for any educational expenses as a business expense, you cannot also take a deduction or credit for it as an educational expense. Did you or one of your family members attend school in the past year? Which education-related tax deductions are you eligible for? (photo credit: Shutterstock ) Related Articles: 13 Tax Deductions Often Overlooked 529 College Savings Plan & Fund – Best Way to Save for Your Child’s College Education? 4 Job-Related & Job Search Expenses That Are Tax Deductible How a 529 College Savings Plan Can Save Your Child A Ton On College Personal Finance Round-Up: 11 Most Overlooked Tax Deductions 4 Education-Related Tax Deductions and Credits For College Tuition & Expenses is a post from the Money Crashers personal finance blog .

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4 Education-Related Tax Deductions and Credits For College Tuition & Expenses