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News One
College Tax Benefits: How You Can Save
We all know that paying for college isn't easy. But did you know there are tax benefits available to you each year to help you put a little jingle back in your pocket? There are two types of education tax benefits: Federal Tax Credits and Federal/State Tax Deductions. Tax Credits will reduce dollar-for-dollar the amount of Federal taxes you owe. Tax deductions allow you to reduce your taxable income, which may in turn reduce the amount of taxes you owe.
Hope Scholarship Credit (HSC)
The Hope Scholarship Credit, also referred to as Education Credit, is one of two credits available to help families offset the costs of higher education by reducing the amount of Federal income tax. The Hope Credit allows families to claim a credit of up to $1,500 for qualified education expenses paid for each eligible student for the 1st two years of undergraduate education. It is a nonrefundable credit, which means that it can reduce the family tax to zero.
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Tax credit up to $1,500/year for each student
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100% tax credit for the first $1,000 paid for qualified expenses. 50% tax credit for the second $1,000.
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Parents or independent students may claim HSC for first 2 years of undergraduate education only. Student must be in 1st or 2nd year and enrolled at least half-time in a degree program.
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Covers tuition and fees. (Student activity fees, athletic fees and other expenses do not count toward the credit.)
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Students qualify by paying tuition and fees for self (if independent) or a spouse. Parents qualify by paying tuition and fees for their dependent child or children.
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Grants and scholarships will reduce the tuition and fees used to determine your credit.
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Eligibility decreases for modified Adjusted Gross Incomes (AGIs) between $40,000 - $50,000 (filing single) and $80,000 - $100,000 (married, filing jointly). Cannot claim with modified AGIs above these limits.
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Students or parents benefit from tax credits only to the extent that Federal income taxes are owed. If no taxes are owed, no tax credit is received.
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Lifetime Learning Credit (LLC)
Lifetime Learning Credit, also referred to as Education Credit, offsets the costs of higher education by reducing the amount of Federal income tax. The Lifetime Learning Credit allows families to claim a credit of up to $2,000 for qualified education expenses paid for each eligible student (year 3 & up) taking at least one course. It is a nonrefundable credit, which means that it can reduce the family tax to zero.
Details:
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May save a student or parent up to $2,000/year in Federal taxes.
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20% tax credit on the first $10,000 paid.
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No limit on number of tax years you may claim LLC.
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Covers tuition and fees. (Student activity fees, athletic fees and other expenses do not count toward the credit.)
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Available to college students from year 3 and up, including graduate and professional students and to students taking individual classes to improve job skills.
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Students qualify by paying tuition and fees for self (if independent) or a spouse. Parents qualify by paying tuition and fees for their dependent child or children.
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Student Loan Interest Federal Reduction
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Parents and independent students may deduct interest on student loans borrowed to meet college expenses
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Deduction is for interest payments made during the first 60 months (5 years) in which interest payments are required.
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Deduction diminishes for modified gross income between $40,000 - $55,000 (single filers) and $60,000 - $75,000 (married, filing jointly). Cannot deduct if income is above these amounts.
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Maximum deduction =$2,500.
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You are not required to itemize to receive the deduction.
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Dependents may not claim the deduction.
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Married couples must file jointly to receive the deduction.
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Your state may offer similar tax deductions to help you pay for college. To learn about tax deductions available in your state, contact your state income tax agency or a tax professional.
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02/01/2007
College Tax Benefits: How You Can Save
Paying For College |
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