Education Tax Credits
The American Opportunity Credit and the Lifetime Learning Credit can help you pay higher education costs for you or your dependents. To qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit can be claimed by the parent or the student but not by both. If the student is claimed as a dependent, the student cannot file for the credit. For each student, you can choose to claim only one of the credits in a single tax year. You cannot claim the American Opportunity Credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning Credit for $2,000 more of her school costs. 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.
Here are some key facts you should know about these education credits:
The American Opportunity Credit
1. The credit is a maximum of $2,500 per eligible student.
2. It is available for the first four years of post-secondary education.
3. Forty percent of the credit is refundable, which means that you may receive up to $1,000, even if you owe no taxes.
4. The student must be pursuing an undergraduate degree or other recognized educational credential.
5. The student must be enrolled at least half time for at least one academic period.
6. Qualified expenses include tuition and fees, course related books, supplies, and equipment.
7. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return.
The Lifetime Learning Credit
1. The credit is a maximum of $2,000 per eligible student.
2. It is available for all years of postsecondary education and for courses to acquire or improve job skills.
3. The maximum credited is limited to the amount of tax you must pay on your return.
4. The student does not need to be pursuing a degree or other recognized education credential. Qualified expenses include tuition and fees, course related books, supplies and equipment.
5. The full credit is generally available to eligible taxpayers who make less than $60,000 or $120,000 for married couples filing a joint return.
You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax 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. For more information about these credits see IRS Publication 970, Tax Benefits for Education available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
As always, consult with your tax adviser to make sure that you are keeping the records you need to prove the income you've earned and the deductions you've taken in your tax return.
About the Author
Charlie Seitz has prepared over 10,000 tax returns at latest count. His ezine, Terrific Tax Tips, gives taxpayers tools they need to intelligently reduce the taxes they pay. Find out more at: -> http://www.taxpertonline.com
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