With the cost of college increasing an average of 7% per year, tax credits such as the American Opportunity Credit and the Lifetime Learning Credit can help to defray some of the cost. A four year college degree continues to be a good investment, however cost dictates that one take advantage of financial aid and tax credits. Below is a summary of the current tax credits and deductions that are available.
The following tax credits and deductions apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.
- Lifetime Learning Credit This credit allows for up to $2000 per year towards the cost of qualified education expenses at an approved educational institution. The Lifetime Learning Credit is available to taxpayers with modified adjusted gross income below $60,000 ($120,000 married filing jointly)
- American Opportunity Credit Covers up to $2,500 of qualified educational expenses for the first four years of post secondary education. Qualified expenses include tuition and fees, books, equipment and supplies. The American Opportunity Credit is available to taxpayers with modified adjusted gross income below $80,000 ($160,000 for married couples filing a joint return). This tax credit is set to expire at the end of 2012.
- Student Loan Interest Deduction Interest on a Student Loan used for qualified higher education expenses may be deductible if your modified adjusted gross income is less than $75,000 ($150,000 if married filing a joint return). Even if you don’t itemize, this credit can reduce your income subject to tax by $2,500. This tax credit may change after 2012
- Tuition and Fees Deduction You can reduce taxable income by up to $4,000 for 2011 for qualified higher education tuition and fees if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly)
For each student in college you can only use one of the tax credits per tax year. If you have more than one student in college, you may take advantage of tax credits for each student. If you want you could use the Lifetime Learning Credit for one child and use the American Opportunity Credit for your other child. You may only use the tax credit or take a deduction, you may not use both.
Do you plan on taking advantage of these tax credits or deductions to help finance a college education?