Education Tax Credits And Deductions

If you are a student, you can cover some of the costs of your education by using education tax credits and deductions. Many of the major tax credits and deductions are designed to help students afford higher education. Here are some of the top education tax credits and deductions.

American Opportunity Tax Credit

This tax credit helps eligible students cover expenses made to receive higher education for the first four years. The maximum credit is $2,500 per student. Even if you do not owe any taxes, you can claim this credit on your tax return and 40% of any remaining amount of the credit (up to $1,000) will be refunded to you.

To be eligible to claim the American Opportunity Tax Credit, a student must:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

Lifetime Learning Credit

This tax credit helps eligible students meet tuition and other education-related expenses. Unlike the American Opportunity Tax Credit that focuses on higher education, the Lifetime Learning Credit can be used by undergraduates, graduates, and professional degree course students.

The credit is worth $2,000 per eligible student. You can claim this credit for as many years as you want.

To be eligible to claim the Lifetime Learning Credit, a student must:

• Be enrolled or taking courses at an eligible educational institution
• Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
• Be enrolled for at least one academic period* during the tax year

Tuition and Fees Deduction

You can deduct qualified education expenses worth $4,000 for higher education paid for yourself, a dependent, or your spouse on your tax return. You can claim this deduction even if you do not itemize deductions on Form 1040 Schedule A.

Those filing under “married filing separately” cannot claim this deduction. If another person has claimed the exemption for the student, then you cannot claim it on your return.

Student Loan Interest Deduction

If your modified adjusted gross income is less than $75,000 ($150,000 for those filing jointly) and you are pursuing higher education, there is a special deduction for paying interest on a student loan, also known as an education loan worth $2,500.

As this deduction is taken as an adjustment to income, you can claim it even if you do not itemize deductions on Form 1040 Schedule A.

Work-Related Education Expenses Deduction

If you are an employee or you are self-employed and you pay for work-related education, you can deduct the education expenses as business expenses, but only if you itemize your deductions. You cannot claim this deduction if the education is the minimum education requirement of your present business/work, or is part of a study that will qualify you for a new business/profession.