Education Tax Breaks Include Credits and Deductions
Education tax breaks can help recoup some of the costs of post-secondary learning. These tax breaks come in two forms: One is credits, which go dollar-for-dollar toward paying your taxes (and in some cases can even bring you a refund). The other is deductions, which reduce the amount of income your tax is calculated on.
Education Tax Breaks: Tax Credits
The two primary education tax credits are the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).
The AOTC is good for up to $2,500 per eligible student. The credit is good for the first four years of college. The student must study at least half-time, and be pursuing a degree. Expenses that generate the credit include tuition, fees and course materials such as books and supplies. The credit covers 100 percent of the first $2,000 of expenses, and 25 percent of the next $2,000.
The AOTC is 40 percent refundable, which means that even if you have no tax liability, you can receive up to $1,000 as a refund.
The LLC is good for up to $2,000 per eligible student. Unlike the AOTC, the LLC covers undergraduate, graduate, or professional degree/non-degree courses, including one course to improve job skills. The student does not need to be pursuing a degree. The LLC covers 20 percent of expenses up to $10,000, giving a maximum credit of $2,000. The LLC is, however, non-refundable.
You can claim either credit (not both at the same time) if the student is you, your spouse (if filing jointly) or a dependent claimed on your return.
Education Tax Breaks: Tax Deductions
If you’ve already taken out loans to pay for school, the student loan interest deduction allows eligible taxpayers to deduct up to $2,500 of interest paid on qualified student loans from their taxable income. The deduction does not require itemizing, and is available for interest paid on both federal and private loans.
For work-related education, eligible self-employed individuals, Armed Forces reservists, certain artists, and certain government officials may be able to deduct the costs of qualifying work-related education as business expenses.
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You can use the Free Application for Federal Student Aid (FAFSA) to apply for financial aid for higher education.
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