Tax Savings For Higher Education
 By Patrick L. Wynne

No matter who’s paying the costs associated with college, chances are there’s a tax deduction or credit just waiting to be taken.

Here’s what you—or your college student—need to know about higher education tax benefits.

College Tax Credits
You may qualify for one or both of these tax credits in 2011.

1. The Lifetime Learning Credit
In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses. This applies to students enrolled in an eligible educational institution.

To claim the credit, your modified adjusted gross income must be less than $60,000 for an individual, or $120,000 if married and filing jointly.

There’s no limit on the number of years you can claim this credit for an eligible student.

2. The American Opportunity Credit
This credit has been extended for 2011 and 2012. It’s available for the first four years of post secondary education. And it can be up to $2,500 per eligible student.

Because 40 percent of this credit is refundable, you may be able to receive up to $1,000 even if you owe no federal taxes. The full credit is usually available to eligible taxpayers whose modified adjusted gross income is less than $80,000, or $160,000 for married people who file a joint return.

Qualified expenses include:

• Tuition
• Fees
• Supplies
• Equipment
• Course-related books

Tax Deductions
Don’t miss these deductions on your federal tax return.

1. Tuition and fees deduction
Even if you don’t itemize on your federal tax return, this deduction can reduce the amount of your income subject to taxes by up to $4,000 for 2011.

If your modified adjusted gross income is less than $80,000, or $160,000 if married filing jointly, you can generally take the tuition and fees deduction for qualified higher education expenses for an eligible student.

2. Student loan interest deduction
If your modified adjusted gross income is less than $75,000, or $150,000 if filing a joint return, you may be able to deduct interest paid on a student loan that was used for higher education during the year.

This deduction can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

Who Can Claim The Credits And Deductions?
These tax benefits apply to you or your spouse. They also apply to a dependent if you claim the dependent as an exemption on your tax return.

Which Benefits Can You Claim?
For each eligible student, you can choose to claim only one of the tax credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis.

For example, you might claim the American Opportunity Credit for your sophomore son and the Lifetime Learning Credit for your freshman daughter.

You’re no allowed to claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, so be sure to calculate which is more beneficial for you.

For More Information
The online certified public accounts at AFS ProTax can answer your questions about higher education tax credits and deductions. Just submit your question to receive complete and confidential answers within two business days—at no additional charge!

You can also learn more by downloading IRS Publication 970, Tax Benefits for Education.

(Posted October 2011)

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