The Internal Revenue Service is offering some tax tips this week as payment deadlines are looming for recent high school graduates who will attend college this fall as well as returning students.
Check out this list of education tax benefits that can help offset college costs for students and parents.
Students should note that they will only be able to claim one type of education credit per tax year. However, parents paying college expenses for more than one student in the same year can claim one credit for one student and a different credit for another.
1. American Opportunity Credit – This credit, which was originally created under the American Recovery and Reinvestment Act, can be up to $2,500 per eligible student and is available for the first four years of post secondary education at some institutions.
A total 40 percent of this credit is refundable, which means that students may be able to receive up to $1,000, even if they do not owe taxes. Expenses that qualify include tuition fees, course-related books, supplies and equipment.
2. Lifetime Learning Credit- Students may be able to claim up to $2,000 for qualified expenses paid at eligible institutions. There is no limit on the number of years a student can claim the credit.
3. Student Loan Interest Deduction – Personal interest – other than certain mortgage interest – is typically not deductible. However, it is possible to deduct interest paid on a qualified student loan during the year. It can reduce the amount of income subject to tax by up to $2,500, even if you don’t itemize deductions.
These education benefits are subject to income limitations and may be reduced or eliminated based on an applicant’s income. For more information, visit the Tax Benefits for Education Information Center at the IRS’s website or call 1-800-829-3676.