There are four tax benefits for college education expenses:
· Tuition and fees tax deduction
· The American Opportunity Credit
· The Hope Credit
· The Lifetime Learning Credit
The Tuition and Fees deduction will reduce your taxable income. The Hope Credit, Lifetime Learning Credit and American Opportunity credit can reduce your tax bill. The American Opportunity credit replaces the Hope credit for 2009 and 2010, and provides a partially refundable credit. Taxpayers should investigate all of their options and choose the credit that will give them the lower tax; however, they cannot claim more than one credit or a credit and deduction for the same expenses. You cannot “double dip”. The education tax credits are calculated on IRS Form 8863 (PDF).
The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit can provide up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable. This is unique to the American Opportunity Tax Credit. The tax credit is scheduled to have a limited life span and, unless Congress extends the credit to additional tax years, it will be available only for the 2009 and 2010 tax years.
The Hope Credit is a tax credit for college students in their first two years of college. It provides a tax credit of up to $1,800 on the first $2,400 of college tuition and fees. The Hope Credit can be claimed on your tax return if you, your spouse, or your dependent are a first-year or second-year college student, is enrolled at least half-time at an eligible education institution, and you were responsible for paying college expenses. If you missed this credit in the past, it might be possible to file an amended tax return for the year(s) in question.
The Lifetime Learning Credit is a tax credit for any person who takes college classes, even if you took only one class. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. The total credit is limited to $ 2,000 per return, but you can claim the Lifetime Learning Credit if you, your spouse, or your dependents are enrolled at an eligible educational institution and you were responsible for paying college expenses.
A QUICK REFERENCE GUIDE
American Opportunity Credit
Lifetime Learning Credit
- Credit of up to $2,000 based on qualified tuition and related expenses paid for all eligible students. Can reduce taxes to $0. Excess funds cannot be refunded.
- Can be used for Education expenses paid with borrower funds (student loans).
- Available for all years of post secondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of years.
- Student does not need to be pursuing a degree or other recognized education credential.
- Available for one or more courses.
- Felony drug conviction rule does not apply.
A final word of caution – Patience is a virtue that can pay BIG $s. Do not fall victim to so-called "instant" or "same-day" refunds. These are actually short term bank loans, and most have exorbitant fees. According to Brendan Conway (Contributor to The Christian Science Monitor / March 2, 2009), in some cases, that means a mind-boggling 1,300% when calculated like a credit-card’s annual percentage rate. Electronic refunds are generally processed within 15 days and a refund returned by mail will usually be received within 3 to 4 weeks.
This information is provided by SWFC to increase student awareness of possible Education Tax Credits and Deductions. We are not Tax Preparation experts. If you are interested in using any of these credits or deductions, please consult a Tax Expert or the IRS.