Posted by The TaxAdvocate Group, LLC

Education Tax Deductions and Credits to Claim in 2021

Education Tax Deductions and Credits to Claim in 2021

In the previous years, people who paid for college qualify for the lifetime learning Credit, American Opportunity Credit, or the tuition deduction. The most valuable of these is the American Opportunity Credit, for people that qualify. 

It does not matter if you paid your fees using student loans; you can claim these tax credits. As long as parents do not file with the married and separate status, they can also claim the credit. Here are other things to note about each of the credit


American Opportunity Credit 

This gives you the opportunity to reduce your tax bill by as much as $2,500, provided you paid up to this for undergraduate expenses in the previous year. This credit allows citizens to claim the first $2000 spent on books, school fees, tuition, other equipment, and 25% of the next 2,500 USD. It, however, does not include transportation and living expenses. 

Qualification: This credit is for undergraduate students and their parents. One can claim this credit for up to four years. Also, if your parents footed all the bills for your educational expenses, and you appear as a dependent on their tax return, they can claim the credit.

The American Opportunity credit reduces the overall tax amount you will pay. For instance, someone with a tax debt of $2,800 who gets the entire $2,500 credit will only pay $300 to Uncle Sam.

This credit type is refundable as one can receive 40% of the credit value – up to $1000. It does not matter if you didn't earn income in the previous year or had no tax debt. For instance, anyone that qualifies for a refund might shoot up what they will get by up to $1000. This makes this specific tax credit the best for students with their families. 


Lifetime Learning Credit 

Students can claim 20% of the first $10,000 paid for tuition in 2020, which gives a maximum of $2000. Like the previous credit, eligible lifetime learning credit expenses do not include living expenses and transport costs. There is, however, the opportunity to claim books and other materials used for studies. 

This credit is not specified for parents and their undergraduate wards alone. Graduate, vocational students, and non-degree students can take advantage of this without a cap on the number of years one can claim. This makes it the perfect choice for a graduate student or anyone interested in learning new skills. 

While you cannot claim the American Opportunity Credit and the Lifetime Learning Credit the same year, one can claim LLC even if one has claimed the AOC in the past. 

The criteria for claiming this credit is that your Modified AGI must be below 59,000 USD the previous year (double this value for joint filers). For people with modified AGI between $59,000 and $69,000 (double values respectively for married filing jointly), they qualify for reduced credit. 

You do not qualify if your modified AGI is above $69,000 (double for married filing jointly)

Finally, this is not a refundable credit, meaning you cannot get it as a refund if you neither earned income nor paid tax.  


Deduction for Tuition and Fees

With this credit, beneficiaries can deduct as much as $4000 from their gross income for funds spent on qualified education expenses in the 2020 tax year. Examples are tuition, books, fees, and other expenses essential for college.

With other education tax credits, one cannot deduct personal expenses such as transportation. While this deduction was initially scheduled to expire in Dec 2017, it was extended to the end of 2020. Students and parents with earnings below $65000 (double for married and filing jointly) qualify. There is the provision for a $2000 deduction for people that earned between $65,000 and $80,000.

There is no provision to claim fees and tuition deduction alongside other education tax credit in the same tax year for a single student. For someone who qualifies for all the tax credits, consult a tax professional to help decide the best to claim. 

This deduction can bring down your taxable income by as much as $4000, provided you qualify for the entire deduction. Although, bringing down your taxable income might not give you much savings like getting a tax credit, even though this deduction is a benefit for citizens who do not qualify for the AOC and LLC.


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