Higher Education Tax Incentives
Tax credits decrease your tax liability, which is the amount of tax you owe. Tax deductions decrease your taxable income, which is the amount of your income that is subject to taxation.
NOTE: Taxpayers may only take one of these two credits in a given year.
The American Opportunity Credit is a credit for up to $2,500 for the first $4,000 spent on qualified education expenses in a year and is available for the first four years of post-secondary education. Even if you do not make enough money to file a tax return, file anyway because you may get up to $1,000 back. Qualified education expenses include tuition and many other education-related expenses including required course material. The student must be enrolled at least half-time working toward an undergraduate degree during this time.
The Lifetime Learning Credit is a credit of up to $2,000 for the first $10,000 spent on qualified education expenses each year. Qualified education expenses include tuition and many other education-related expenses. The Lifetime Learning Credit is available for all years of post-secondary education. The student must be enrolled in at least one course at any qualified educational institution.
Note: For tax years 2017 and 2018 the Tuition & Fees Deduction was unavailable; however, under the Further Consolodated Appropriations Act of 2020, the Tuition & Fees Deduction was reinstated for tax year 2019 and retroactively reinstated for tax years 2017 and 2018. If you have questions about amending your 2017 or 2018 returns to claim this deduction, please contact our office.
The Tuition and Fees Deduction is a deduction of up to $4,000 for qualified tuition and fees paid during the year. This deduction is not available if anyone claims the American Opportunity Credit or the Lifetime Learning Credit for the same student.
The Student Loan Interest Deduction is a deduction of up to $2,500 for student loan interest paid during the year. This deduction is available in addition to the other deductions and credits.
You can find additional information about Tax Benefits for Higher Education on the IRS website. IRS Publication 970 Tax Benefits for Education also contains additional information about higher education tax incentives, including the Coverdell Education Savings Account and Qualified Tuition Program.
Tax laws change frequently. Please contact your tax advisor or preparer for information about your specific tax situation.