Tax incentives available for your education expenses are credits (which reduce your taxes) and deductions (certain expenses reduce or offset your income). Each of these tax breaks have different qualifications and benefits. Below is a summary of these credits.
Education credits are the American Opportunity Credit and the Lifetime Learning Credit.
- The American Opportunity Tax Credit is available to taxpayers for the first four years of college. Taxpayers eligible to claim the credit can benefit from:
- Up to a $2,500 education credit per eligible student
- The phaseout income limits are higher than the Lifetime Learning Credit and the former Hope Credit
- 40% of the credit is refundable, which means you may receive up to a $1,000 refund even if you don't owe any taxes
- With the Lifetime Learning Credit there is no limit on the number of years that can be claimed for each student so it is also available to graduate students. Some of the benefits of the credit include:
- A credit of 20% of up to $10,000 of qualified tuition and fees, up to a maximum of $2000
- Available even if a student takes one class
- Available to students even if not pursuing a degree
Typically, you can choose one or the other. After you enter all of your education information, TurboTax helps you make the best choice.
- The Student Loan Interest Deduction: When you start paying back educational loans used for schooling, the interest portion can be a deduction, even if you don't itemize.