Tag Archives: education credit

Tax Breaks for Higher Education

Can you believe that the government wants to give you a tax break for attending college? Well, they won’t give it to you if you don’t ask – so here are a few ways you, as a student, can “ask” for your tax money back.

1. Tuition and Fees Tax Deduction:

The Tuition and Fees Tax Deduction can reduce taxable income by as much as $4,000. This deduction is taken as an adjustment to income. You can claim this deduction even if they do not itemize deductions on Schedule A of Form 1040. This deduction may benefit taxpayers who do not qualify for either the Hope or Lifetime Learning Education Tax Credits.

Up to $4,000 may be deducted from tuition and fees required for enrollment or attendance at an eligible postsecondary institution. Personal living and family expenses, including room and board, insurance, medical and transportation, are not deductible expenses.

The exact amount of the Tuition and Fees Tax Deduction depends on the amount of qualified tuition and related expenses paid for you, a spouse, or dependent for whom the taxpayer can claim an exemption.

2.Lifetime Learning Credit:

The Lifetime Learning Credit is a tax credit available to individuals who owe taxes. The amount of the credit is subtracted from the taxes owed, rather than reducing taxable income as with a tax deduction. Individuals who do not pay taxes are not eligible for a Lifetime Learning credit. Taxpayers who owe less tax than the maximum amount of the Lifetime Learning tax credit for which they are eligible can only take a credit up to the amount of taxes owed.

The amount of the Lifetime Learning tax credit is 20% of the first $10,000 of qualified educational expenses paid for all eligible students. Therefore, the maximum amount of a Lifetime Learning tax credit is $2,000. The Lifetime Learning credit is available for all years of postsecondary education and for courses to acquire or improve job skills, unlike the Hope credit which is only available for two years.

The actual amount of the credit depends on a family’s income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (up to $2,000 per tax return or $4,000 for Gulf Opportunity Zone students) rather than based on the number of dependents in a family as with the Hope credit.

3.Hope Scholarship Credit:

The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted directly from the tax a family owes, instead of being subtracted from taxable income like a tax deduction. A family must file a federal tax return and owe taxes to get this tax credit. A family cannot get a refund for the Hope credit if it does not pay taxes. A family that owes less tax than the maximum amount of the Hope tax credit for which it is eligible can only take a credit up to the amount of taxes owed.

For the 2007 tax year, a family may claim a tax credit up to $1,650 for each eligible dependent for up to two tax years (100% of the first $1,100 and 50% of the second $1,100 paid for qualified expenses). The Hope credit is available only until each student’s first two years of postsecondary education are complete. Gulf Opportunity Zone students may claim up to $3,300 (100% of the first $2,200 and 50% of the second $2,200) for the 2007 tax year.

The exact amount of the Hope credit also depends on a family’s income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in the family, rather than a maximum dollar amount for the family as with the Lifetime Learning tax credit.