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College Tax Credits

By Brenda on April 17th, 2012
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In “celebration” of tax day we’d like to clarify some confusion about the various college tax credits out there. College tuition costs are soaring these days, but there is some relief with various tax credits. Let’s take a look at some of them:

The $4,000 deduction

For the 2011 tax year you can deduct up to a maximum of $4,000 in tuition expenses paid for anyone in your family. You need not itemize in order to get the deduction either. But as is always the case with the IRS, there’s a catch.

You do not get the full deduction in you are single with a modified adjusted gross income (AGI) higher than $65,000 or a joint tax filer with an adjusted gross income of over $130,000 see here. You can also qualify for a $2,000 deduction is your AGI is between $65,000 to $80,000 for single filers or $130,001 and $160,000 for those filing jointly. If you are married and filing separately, you are not eligible for this deduction.

If you can be claimed on anyone’s tax return as a dependant you cannot use the deduction. For example, if your AGI is too high, your college age daughter or son cannot claim the deduction instead of you.

Student Loan Interest

The rules have relaxed for student loan interest for 2011. That means that a lot of tax filers can now take advantage of this tax break when in years past they were not eligible. If you do qualify you can write off up to $2,500 of annual student loan interest. If your adjusted gross income is too high you may not qualify.

American Opportunity and Lifetime Learning Credits

The American Opportunity credit is the first $2,000 of college tuition and fees plus 25% of the next $2,000. The maximum credit is $2,000 per college student. But there is a catch – American Opportunity tax credit can only be claimed for the first four years of college. You also have to be enrolled at least half-time to qualify.

The Lifetime Learning Credit is far less restrictive. It helps to offset costs after your first four years of college. The Lifetime credit is just that – good for a lifetime. And you do not have to be enrolled at a certain level credits. The credit is up to 20% of tuition and fees up to a maximum of $10,000, which equals a nice $2,000 tax credit.

We hope you are able to take advantage of these tax credits and deductions. If you have questions, talk to a tax professional for advice.

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