College tax benefit news
In addition to financial aid, there is an indirect way to reduce the college bill through federal tax reductions. There are four tax breaks for college students and recent graduates. As the April 15 deadline for filing your federal return is approaching, here is a quick review. Some benefits have income and other restrictions. More information can be found in IRS Publication 970, Tax Benefits for Higher Education.
1. Student Loan Interest
Current college students paying interest on unsubsidized loans and graduates who are repaying their loan can claim a tax deduction of up to $2500. There has been a ruling that interest paid on the parent PLUS loan also qualifies, but I recommend that you check with a tax expert before taking that deduction.
2. College Tuition
There are two programs, the American Opportunity Credit (an improvement of the formerly Hope Scholarship Tax Credit) and the Lifetime Learning Tax Credit. They are both tax credits, which means you subtract the amount for which you are eligible right off your tax bill. You must choose which credit to take per qualifying student based on which is more beneficial for you.The American Opportunity Credit.
For the 2011 tax year, a family may claim a credit up to $2,500 for each eligible dependent. The American Opportunity Credit is only available for a student's first four years of postsecondary education. Up to 40% of the credit is refundable even if you owe no taxes!
A student or family may claim a tax credit of up to $2,000 per year with the Lifetime credit. The amount of the Lifetime credit is 20 percent of the first $10,000 of qualified educational expenses paid for all eligible students. The Lifetime credit is available for all years of postsecondary education and for courses to improve job skills.
3. Tuition and Fees Tax Deduction
This is a deduction (not a credit) which can reduce taxable income by as much as $4,000. This deduction may benefit students who do not qualify for either the American Opportunity or Lifetime Learning tax credits. You must decide whether to claim the tuition and fees tax deduction or claim the American Opportunity or Lifetime Learning Credit per qualifying student in the tax year.
4. Moving Expenses
Students who are required to move to take their first job qualify for a deduction for the cost of moving themselves and their possessions.