USA Funds, a national education loan guarantor, advises families that paid college expenses during 2008 that they may qualify for deductions or credits when they file their federal income tax returns.
"In recent years the U.S. Congress has enacted and extended measures to provide federal income tax benefits for families that pay tuition, fees and other higher education expenses," said Carl C. Dalstrom, USA Funds president and CEO. "USA Funds urges taxpayers to consider potential tax benefits that may apply to them as they prepare their 2008 income tax returns."
Among changes in the higher education tax benefits for the 2008 tax year are the following items:
Deduction for higher education expenses. Late last year Congress extended for the 2008 and 2009 tax years this deduction, which was scheduled to expire. Taxpayers may qualify to deduct from their taxable income up to $4,000 in tuition and fees that they paid during the year. Taxpayers do not have to itemize deductions to claim this benefit, but their modified adjusted gross income must be $80,000 or less -- $160,000 or less for married taxpayers filing joint returns -- to qualify for this deduction.
Hope and Lifetime Learning credits. The maximum Hope credit has increased to $1,800, up from $1,650 for the previous tax year. In addition, the maximum income permitted to qualify for the Hope and Lifetime Learning tax credits has been increased by $1,000 for single taxpayers and by $2,000 for joint filers. Single taxpayers with modified adjusted gross incomes of less than $58,000, and married taxpayers filing jointly with incomes of less than $116,000, now qualify for at least a partial credit. The Hope credit permits taxpayers to reduce their taxes for out-of-pocket tuition and fees for each of the first two years of postsecondary study. The Lifetime Learning credit provides a maximum $2,000 credit based on qualified tuition and related expenses paid for any year of postsecondary study. Taxpayers in portions of 10 Midwestern states that were declared federal disaster areas last summer may quality for higher Hope and Lifetime Learning credits.
Higher income limits for joint filers to qualify for student loan interest deduction. Taxpayers who paid interest on qualified student loans during 2008 may be eligible to deduct up to $2,500 from their taxable income. The income limits for married couples filing joint returns to qualify for this deduction have increased by $5,000. Single taxpayers with modified adjusted gross incomes of less than $70,000, and married taxpayers who file joint tax returns reporting modified adjusted incomes of less than $145,000, may qualify for at least a partial deduction.
Other higher education tax benefits. Taxpayers also should consider potential tax savings based on earnings from 529 college savings plans and Coverdell Education Savings Accounts, as well as employer-paid education benefits.
To help students and parents take advantage of these benefits, USA Funds offers a summary of these higher education tax benefits on its Web site at www.usafunds.org/taxbenefits. USA Funds also provides a brochure "Higher Education Tax Benefits - Expanded Taxpayer Savings," which is available free of charge from many colleges, universities and private career colleges.
USA Funds recommends that taxpayers consult with a qualified tax adviser or the Internal Revenue Service to determine their eligibility for any of these tax benefits.