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Education Tax Credits for College Students

Education Tax Credits for College Students

A college education can be expensive, but some tax credits are available to help offset these growing expenses. Here's an overview of tax credits and education deductions you should be aware of as you progress down the path to higher education.

What is the American Opportunity Tax Credit (AOTC)?

The AOTC is a tax credit of up to $2,500 per year for an eligible student. It is reimbursable for up to $1,000.

If you are a self-declared college student, you can claim this credit up to four times (i.e., once a year for four years). If you are the parent of a college student, you can get this tax credit four times for each eligible dependent.

What is Lifetime Learning Credit?

The Lifetime Learning Credit is worth up to $2,000 per year for each qualifying student. The number of years you can claim the credit is unlimited, and there is no minimum enrollment requirement to qualify for the Lifetime Learning Credit. In other words, you don't need to be enrolled full-time to qualify.

If you are a student and no one declares you as independent, you can file your own returns and claim this credit. If you are the parent of a student that you are claiming as a dependent, you can claim this credit on your tax return.

What college credit should I take?

Some students qualify for the AOTC and the Lifetime Learning Credit, but the IRS will not allow you to do both. Generally, students who qualify for both credits will take the AOTC because it is worth more and is refundable.

Lifelong learning credit is best suited for graduate students because there is no limit to the number of years you can claim it. Students who take only a few courses are also more likely to earn lifetime education credits, as no minimum enrollment is required.

Can I apply for the AOTC?

To be eligible for the AOTC, an undergraduate student must:

  • AOTC has not yet been claimed in four previous tax returns

  • Be enrolled at least half-time in an academic semester during the fiscal year

  • Have a university degree or other recognized diplomas

  • Not having completed the first four years of college at the start of the fiscal year

  • You do not have a drug conviction at the end of the tax year

There is an income limit for the AOTC. To get the full amount of the credit, your modified adjusted gross income (MAGI) must be less than $80,000 (or $160,000 if combined with a joint return). If your MAGI is over $80,000, you will receive a reduced amount; if it is over $90,000, you will not be able to claim the credit.

What study expenses are eligible for a tax credit?

The educational costs that give rise to these credits include tuition fees and registration fees. If you are claiming the American Opportunity Tax Credit, you can also count the cost of books, supplies, and other equipment needed for your program of study.

Costs that do not qualify for a tax credit include room and board, insurance, medical care, transportation, and living expenses.

How much can I deduct for student loan interest?

If you meet all the conditions for the deduction, you can claim up to $2,500 in interest paid on your student loans.

Another tax incentive for students or parents paying for college is the student loan interest deduction. It can be taken in addition to an education tax credit. 

Who should apply for an education loan, the parent or the student?

If you are a student and no one declares you as independent, you can apply for credit. But if you are the parent of a student who you claim as a dependent, you will get the tax credit for yourself.

Anyone claiming the credit will need a Form 1098-T from the school showing the amount paid for tuition and qualifying expenses. If you don't have a 1098-T, you can still request one, but not all schools are required to provide one. If your institution does not send you a 1098-T, you will still need an enrollment slip and the amount you paid for tuition and fees.

Do I have to claim the same credit for two different dependents?

No, you do not need to claim the same credit for two different dependents. Let's say you have two kids in college. You can claim the AOTC for one dependent and the Lifetime Learning Credit for the other dependent in the same tax year.

Note that you cannot receive both credits for the same dependent.



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