Whether you’re a recent graduate going to college for the first time or a
returning student, it will soon be time to get to campus – and payment
deadlines for tuition and other fees are not far behind. The Internal Revenue
Service reminds students or parents paying such expenses to keep receipts and
to be aware of some tax benefits that can help offset college costs.
Typically, these benefits apply to you, your spouse or a dependent for whom
you claim an exemption on your tax return.
- American Opportunity
Credit
This credit, originally created under the American Recovery and
Reinvestment Act, has been extended for an additional two years – 2011 and
2012. The credit can be up to $2,500 per eligible student and is available
for the first four years of post secondary education. Forty percent of
this credit is refundable, which means that you may be able to receive up
to $1,000, even if you owe no taxes. Qualified expenses include tuition
and fees, course related books, supplies and equipment. The full credit is
generally available to eligible taxpayers whose modified adjusted gross
income is below $80,000 ($160,000 for married couples filing a joint
return). - Lifetime Learning
Credit
In 2011, 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,
but to claim the credit, your modified adjusted gross income must be below
$60,000 ($120,000 if married filing jointly). - Tuition and Fees
Deduction
This deduction can reduce the amount of your income subject to tax by up
to $4,000 for 2011 even if you do not itemize your deductions. Generally,
you can claim the tuition and fees deduction for qualified higher
education expenses for an eligible student if your modified adjusted gross
income is below $80,000 ($160,000 if married filing jointly). - Student loan interest
deduction
Generally, personal interest you pay, other than certain mortgage
interest, is not deductible. However, if your modified adjusted gross
income is less than $75,000 ($150,000 if filing a joint return), you may
be able to deduct interest paid on a student loan used for higher
education during the year. It can reduce the amount of your income subject
to tax by up to $2,500, even if you don’t itemize deductions.
For each student, you can choose to claim only one of the credits in a
single tax year. However, if you pay college expenses for two or more students
in the same year, you can choose to take credits on a per-student, per-year
basis. You can claim the American Opportunity Credit for your sophomore daughter
and the Lifetime Learning Credit for your senior son.
You cannot claim the tuition and fees deduction for the same student in the
same year that you claim the American Opportunity Credit or the Lifetime
Learning Credit. You must choose to either take the credit or the deduction and
should consider which is more beneficial for you.