Children's Education Tax Deductions
If you pay your child's higher education expenses, you may be able to take a tax deduction or a tax credit for some or all of these expenses. A tax deduction will reduce the amount of your income that is subject to income tax, while a tax credit directly reduces the amount of income tax that you will have to pay. Depending on your particular situation, there are several different tax benefits that you may qualify for.
Eligible Children
In order to take tax deductions and credits for your child's educational expenses, your child must qualify as your dependent. Although there are some exceptions, in general a dependent child must: live with you for more than half the year; be no older than 18 at the end of the tax year, or no older than 23 if he is a full-time student for at least five months during the tax year; and provide less than half of his own financial support during the tax year.
Hope Credit
The Hope Credit can reduce your income tax by up to $1,800 per student. The credit is only available to students in the first two years of college who are enrolled at least half-time in a degree or certificate program. The credit is equal to 100 percent of the first $1,200 in eligible educational expenses and 50% of the next $1,200 in eligible expenses. Eligible expenses include tuition and other fees required for enrollment at a postsecondary institution. The maximum credit is reduced for taxpayers with a modified adjusted gross income greater than $48,000 ($96,000 for married filing jointly) and is unavailable if your modified adjusted gross income is above $58,000 ($116,000 filing jointly). The Hope Credit can be claimed for an unlimited number of students. If you claim a Hope Credit, you cannot also claim a Lifetime Learning Credit or tuition and fees deduction for that same student.
Lifetime Learning Credit
The Lifetime Learning Credit can reduce your income tax by up to $2,000. Unlike the Hope Credit, the Lifetime Learning Credit can be claimed for an unlimited number of years and is available to students who are only taking one course as well as to students who are enrolled in degree programs. The credit is equal to 20% of up to $10,000 paid in eligible educational expenses. Eligible educational expenses include tuition and required fees at a postsecondary institution. While the credit can be claimed for several students, the maximum credit available is $2,000 per tax return. The amount of credit available is diminished for taxpayers with a modified adjusted gross income greater than $48,000 ($96,000 filing jointly); you are not eligible to claim the credit if your modified adjusted gross income is greater than $58,000 ($116,000 for joint filers).
Tuition and Fees Deduction
You can take a tuition and fees deduction of up to $4,000 for tuition and required fees that you paid for your child's higher education. The student does not have to be enrolled in a degree program. If your modified adjusted gross income is between $65,000 and $80,000 ($130,000 and $160,000 for married filing jointly), your maximum deduction is reduced to $2,000; taxpayers with a modified adjusted gross income greater than $80,000 are not eligible to claim the deduction. The tuition and fees deduction may be a good option if your child didn't qualify for the Hope or Lifetime Learning Credits.
Student Loan Interest Deduction
If you take out a student loan to pay for your child's education expenses, you can deduct up to $2,500 of the interest that you paid on that loan during the tax year. Unlike the Hope and Lifetime Learning Credits, eligible educational expenses include room and board and other necessary expenses as well as tuition and fees. The deduction is reduced if your modified adjusted gross income is larger than $55,000 ($115,000 for joint filers) and is unavailable if your modified adjusted gross is greater than $70,000 ($145,000 for filing jointly).
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