Tax Issues With Higher Education

Wednesday, May 2, 2012, AM | Leave Comment

Education needless to say is quite expensive, especially higher education. During tax time, you are generally able to get credit for higher education. Of course, not the total amount you have spent but some percentage of it which nonetheless helps in paying tuition fees and other expenses such as books. If the following one or more items apply to your case, take advantage of them.

  1. Lifetime Opportunity

    The lifetime learning credit provides a tax credit for 20% of educational expenses up to $10,000. The maximum credit available per year is $2,000 regardless of the number of students and applies to the post secondary education expenses of you, your spouse and your dependents.

    Taxpayers are eligible to receive the credit for most educational expenses from graduate degree courses to noncredit courses that help acquire or improve job skills.

    There is also no limit on the course load. One course is all that is necessary to be eligible.

  2. The Interest Of Higher Education

    If you have, or are considering, student loans to pay for a college education, the interest on those loans may be deductible.

    Interest on student loans is not an itemized deduction and you can receive the benefit even if you do not have itemized deductions.

    A maximum deduction of $2,500 per year is available for individuals with income less than $60,000 ($120,000 for married filing joint).

    The deduction is reduced at higher incomes levels and is completely eliminated for incomes greater than $75,000 ($150,000 for married filing joint).

  3. American Opportunity Tax Credit

    The American opportunity tax credit, will be available for 2012. The credit continues to cover the first four years of Post Secondary education. Qualified expenses still include textbooks in addition to tuition and required fees.

    The credit continues at a maximum of $2,500, with the maximum refundable portion being $1,000. Taxpayers with an adjusted gross income of $80,000 ($160,000 if married filing joint) will begin to have their credit phased out.

    The phase out is complete when adjusted gross income reaches $90,000 ($180,000 if married filing joint).

    The American opportunity tax credit is scheduled to expire at the end of 2012. The Hope credit with its lower limitations will return for 2013 unless Congress modifies the law.

  4. Not Less Interest for Higher Education

    The student loan interest deduction at $2,500 with higher phaseout levels continues for 2012.

    The law that will apply in 2013, unless modified by legislation, will have reduced phaseout levels at a significantly lower adjusted gross income range.

    The loan interest deduction also will apply only to interest paid during the first 60 months in which interest payments are required.

  5. Tuition and Fees Deduction

    The tuition and fees deduction expired at the end of 2011. Unless new legislation is passed in 2012, the tuition and fees deduction will not be available on your 2012 return.

    In some cases the tuition and fees deduction may give you a greater tax benefit than one of the credits. However, you should evaluate the alternative tax treatments to determine which will give you the best results.

    Education expenses are considered automatically within the system for the American opportunity credit or the lifetime learning credit if one qualifies for those credits in addition to the tuition and fees deduction.

  6. Educator Expenses

    New legislation that allowed educators to deduct up to $250 of out-of-pocket ordinary and necessary classroom-related expenses as an adjustment to income expired at the end of 2011. Unless extended by the legislature this deduction will not be available for 2012.

    Previously, if both spouses in a joint return are educators then each may deduct up to $250 of qualifying expenses for a total of $500.

In a Nutshell

Source: TaxACT

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