Full List of the Education Tax Credits and Deductions Available: Do You Qualify?

education-tax-credit

This is the silver lining you’ve been looking for – a tax break on the cost of college.

Granted, college students graduate with an average of $30,000 in student loan debt these days, so it may only make a dent. But that dent could be much needed.

Here’s what you need to know about qualifying for education tax credits and deductions so you can save as much money as possible this tax season.

Difference between tax credits and tax deductions

Tax credits, which include the American Opportunity Tax Credit and the Lifetime Learning Credit, lower what you owe in taxes. They’re a dollar-for-dollar reduction of your tax bill.

Tax deductions, on the other hand, decrease the total amount of income you pay taxes on. These include the Tuition and Fees Deduction and the Student Loan Interest Deduction.

Guide to education tax credits

There are two types of education tax credits – the American Opportunity Tax Credit and the Lifetime Learning Credit. Eligibility and benefits are different for each, but there are some features shared by both.

According to the IRS, you must meet all three of the following criteria in order to be eligible for either of the two education tax credits:

  1. You, your dependent, or a third party pays qualified education expenses for higher education
  2. The eligible student is enrolled at an eligible educational institution
  3. The eligible student is yourself, your spouse, or a dependent on your tax return

“Qualified education expenses” include tuition and fees required for enrollment or attendance.

“Eligible educational institution” is one that qualifies for federal student aid. To determine if your school is eligible, go to fafsa.gov and make sure it has a Federal School Code.

You are not eligible for tax credits if you are a married couple filing separately.

American Opportunity Tax Credit

Who’s eligible?

You are eligible for the American Opportunity Tax Credit if the student in question meets the three main criteria applicable to tax credits (outlined above), as well as the following:

  • Has not completed four years of college credits
  • Is enrolled at least half-time during one academic period (e.g., semester) for the tax year
  • Is enrolled in a program in pursuit of a degree or certificate

Plus, your modified adjusted gross income is $80,000 or less, or $160,000 for married couples filing jointly.

How much is the tax credit worth?

The American Opportunity Tax Credit is up to $2,500 per year, per eligible student. This covers tuition and fees required for enrollment or attendance.

Do you get a refund if you don’t owe any taxes?

Yes, you can get up 40 percent of the tax credit refunded to you ($1,000).

Lifetime Learning Credit

Who’s eligible?

You are eligible to claim the lifetime learning credit if the student in question meets the three main criteria applicable to tax credits (outlined above), as well as the following:

  • Is enrolled in at least one course during the tax year

Plus, your modified adjusted gross income is $52,000 or less, or $104,000 for married couples filing jointly.

That’s pretty much it, making this a much easier tax credit to qualify for, as the eligible student:

  • Need not be pursuing any degree or certificate
  • Can be an undergraduate or graduate
  • Can have completed more than four years of college credits

That said, you may only claim the Lifetime Learning Credit for one student per tax return.

How much is the tax credit worth?

The Lifetime Learning Tax Credit awards up to $2,000 per return. This covers tuition and fees required for enrollment or attendance.

Is the tax credit refundable if you don’t owe any taxes?

No.

What if you qualify for both tax credits?

You can only claim one of them per student, per year.

Can you qualify for tax credits for multiple students?

Yes, but you can only claim one per student. You may claim the American Opportunity Tax Credit for multiple students. However, you may only claim the Lifetime Learning Credit for one student (so a maximum of $2,000 per return).

How do you apply for an education tax credit?

Fill out Form 8863 and attach it to Form 1040 or 1040A.

Guide to education tax deductions

Before we jump into the tax deductions available, a quick note on eligibility: you are not eligible for either education tax deduction if:

  • You are a married couple filing separately.
  • You are claimed as a dependent on someone else’s tax return.

That said, let’s take a closer look at the deductions you could be eligible to claim if the above don’t apply.

Tuition and Fees Deduction

Who’s eligible?

You are eligible if:

  • You paid tuition and required fees for an eligible student
  • The eligible student is enrolled at a qualifying educational institution
  • You have modified adjusted gross income of $80,000 or $160,000 if married and filing jointly

How much is the tax deduction worth?

The Tuition and Fees Deduction can reduce your taxable income up to $4,000.

Student Loan Interest Deduction

Who’s eligible?

You are eligible if:

  • The eligible student was enrolled in a degree or certification program at least half-time
  • The loan is in your name or your spouse’s name

How much is the tax deduction worth?

The Student Loan Interest Deduction will reduce your taxable income up to $2,500 per tax return.

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Bottom line

Clearly, this is a lot of information to process and is not intended to replace the advice of a tax professional. Consult with one you trust about what’s best for you and make sure you take full advantage of the tax benefits that could help you make college more affordable.

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