There are several money-saving tax benefits available to taxpayers paying for higher education. Remember that a tax deduction reduces the amount of income subject to tax before the tax is determined. Tax credits reduce the amount of tax after the tax is calculated. To determine whether you are eligible for any of the deductions and credits listed below please consult with a qualified tax adviser or accountant or contact the IRS directly.
Student Loan Interest Deduction
Borrowers paying interest on eligible student loans may deduct up to $2,500 of the interest paid. The loan must have been used to pay for a student's tuition and other higher education expenses. Eligible expenses include tuition, fees, room and board, books, supplies, equipment, and other expenses including transportation. Individuals with a joint modified adjusted gross income less than $160,000 qualify for this deduction. Hampshire College does not and cannot advise individual borrowers as to whether and how much in student loan interest they can deduct.
Tuition and Fees Deduction
You may be able to deduct the cost of higher education for yourself, your spouse, or a dependent, even if you do not itemize deductions on Schedule A, Form 1040. The Tuition and Fees Deduction can reduce the amount of your income subject to tax by up to $4,000. Individuals can file for this deduction with a joint modified adjusted gross income of up to $160,000. For more information please refer to IRS Form 8917.
The American Opportunity Tax Credit
You may qualify for a tax credit of up to $2,500 per eligible student for a taxpayer paying education-related expenses. The student must be enrolled at least half-time in a degree or certificate program, cannot have completed the first four years of post-secondary education before 2014, and not have any felony drug convictions at the end of the tax year. Qualified expenses include tuition, fees, books, supplies and equipment. Not included are room and board, transportation, and other living and medical expenses. This credit is available to taxpayers with a joint adjusted gross income as high as $180,000. For more information please refer to IRS Form 8863.
Lifetime Learning Credit
You may qualify for up to $2,000 per tax return to help pay for undergraduate, graduate, and professional degree courses, including courses designed to improve job skills. There is no limit on the number of years an individual can claim the Lifetime Learning Credit. Qualified expenses include tuition, fees, books, supplies, and equipment. Not included are room and board, and other living and medical expenses. This credit is available to taxpayers with modified adjusted gross income less than $64,000 or $128,000 if filing jointly. A family may not claim more than one credit for the same student in any one year. For more information please refer to IRS Form 8863.
Other Tax Benefits Available
There are additional ways that one may use higher education expenses toward tax credits or tax deductions such as IRA withdrawals, employer-provided educational assistance, and Coverdell Education Savings Accounts.
To learn more about the information listed above, please contact the IRS directly or review the IRS Publication 970 on Tax Benefits for Education. The IRS may be contacted by phone at 800.829.3676 or review Publication 970 (pdf).