There is a vast array of tax breaks available for college students and their parents. How do you choose which one or ones to use and whose tax return to use it on? Here are some tips to help you figure this out.
The Lifetime Learning Credit is 20 percent of up to $10,000 you pay for tuition and fees in any year, or a maximum of $2,000. The credit may be taken each year, and there is no limit to the number of students in the family who are claiming this credit.
The credit may be reduced if your income is too high. For single taxpayers, the credit begins to phase out when adjusted gross income reaches $45,000 and phases out completely when adjusted gross income reaches $55,000. For married taxpayers filing jointly, the credit begins to phase out when adjusted gross income reaches $90,000, and phases out completely when adjusted gross income reaches $110,000.
If the student is claimed as a dependent, the person claiming the student is entitled to the Lifetime Learning Credit.
Deductible student loan interest is interest paid during the first 60 months in which the loan payments are required. The maximum deductible amount is $2,500 per year. The loan can be for tuition, books, fees, and room and board.
As with almost all nice things in the tax code, there is an income restriction on the deduction of student loan interest. The student loan interest deduction begins to phase out at adjusted gross income of $50,000 for single filers with complete phase-out at $65,000. For married joint filers the phase-out begins when adjusted gross income reaches $105,000 and phases out completely at $135,000.
If the student is claimed as a dependent, the person claiming the student takes the student loan interest deduction, even if the loan is in the student's name.
The Hope Credit is 100 percent of the first $1,100 paid for tuition and fees during the tax year and 50 percent of the second $1,100 paid, for a maximum of $1,650 per year. The Hope Credit begins to phase out at adjusted gross income of $45,000 for single filers with a complete phase-out at $55,000. For married joint filers, the credit begins phasing out when adjusted gross income reaches $90,000 and is completely phased out at $110,000.
If you meet these requirements and are eligible to take a deduction for your expenses, you must itemize your deductions on Schedule A. The education deduction falls under the 2% rule for miscellaneous deductions, meaning that only the portion of your miscellaneous deductions that exceeds 2% of your adjusted gross income will be counted as a deduction. You will report the total amount of expenses on Schedule A. There is a place on that schedule where the 2% computation can be performed.
The types of expenses that qualify for the education itemized deduction include:
computer and software