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Higher Education Credits and Deduction
You may be able to claim a credit or a deduction for the cost of tuition and fees to enroll or attend a college or graduate school for yourself, your spouse, or your dependents, even if the education isn't employment or business-related. This article outlines the various tax saving opportunities that are available to taxpayers.
Lifetime Learning Credit:
• This credit is available for qualified expenses of the taxpayer, spouse or a dependent of the taxpayer.
• The credit is not available to taxpayers who are married and file separately.
• Expenses paid by the student are considered to have been paid by the parent if the student is claimed as a dependent on the parent’s return. Likewise, if the student is not claimed by the parent, the expenses paid by the parent can be claimed by the student.
• The credit is a nonrefundable tax credit of 20% of up to $10,000 of qualified expenses. The maximum credit is $2,000 for 2010.
• Qualifying Expenses include tuition and fees for courses taken to acquire or improve job skills. Course-related books, supplies and equipment qualify only if they must be paid to the institution as a condition of enrollment or attendance.
• For married filing joint taxpayers the credit is completely phased out at income of $120,000. Single, head of household and qualifying widow/widower the phase-out is $60,000.
American Opportunity Credit:
• This credit is available for qualified expenses of the taxpayer, spouse or a dependent of the taxpayer.
• The student must be enrolled in a program that leads to a degree, certificate or other educational credential. The student must take at least one-half of the normal full-time education credits for at least one academic period during the tax year.
• To qualify for the credit the student must not have completed the first four years of post-secondary education at an eligible institution.
• The maximum credit amount is $2,500 per student. This would be 100% of the first $2,000 of eligible expenses and 25% of the next $2,000. The credit is not available to taxpayers who are married and file separately.
• Qualifying Expenses include tuition and fees for courses taken at an accredited educational institution. Books, supplies and equipment qualify whether or not the materials are purchased from the institution as a condition of enrollment or attendance.
• For married filing joint taxpayers the credit is totally phased out at income of $180,000. Single, head of household and qualifying widow/widower the phase-out is $80,000.
Tuition and Fees Deduction:
• A married couple filing jointly can deduct up to $4,000 annually of qualifying expenses of the taxpayer, spouse or a dependent of the taxpayer. Single, head of household or qualifying widow/widower can deduct up to $2,000.
• This deduction isn't available for married taxpayers filing separately.
• A taxpayer who can be claimed as a dependent by someone else cannot qualify to claim this deduction. For example, in the case of a dependent child attending college, the parent's expenses for the child can qualify under these rules, but not any expense the child pays for himself or herself. If you're claiming a deduction for expenses incurred on behalf of another individual, that individual's name and social security number must be included on your return.
• The deduction isn't available for expenses incurred for an individual if the American Opportunity tax credit (the Hope credit, as modified for 2009 and 2010) or Lifetime Learning credit is claimed with respect to that individual for the year.
• Qualifying expenses include tuition and fees required for enrollment, but not for the cost of room and board, student activity fees, athletic fees, insurance, transportation costs, or other personal expenses. Books, supplies and equipment qualify only if they must be paid to the educational institution as a condition of enrollment.
• For married filing joint taxpayers the credit is totally phased out at income of $130,000. Single, head of household and qualifying widow/widower the phase-out is $80,000.
In determining the amount of expenses qualifying for the deduction or either of the credits, any amounts received for certain scholarships and other tax-free educational assistance payments are subtracted. Qualifying expenses may also have to be reduced by expenses taken into account to determine amounts excludible from income on interest from U.S. savings bonds used for higher education expenses, and on distributions from qualified tuition programs (also known as 529 plans) or Coverdell education savings accounts. In some cases, you may have to compare tax savings available to you from several different tax benefits to determine which the best one to use is.
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