Facts About Tax Relief on College Fees
To assist individuals with college expenses, the Internal Revenue Service allows deductions and credits for college costs. Deductions reduce the amount of income that is taxed and can either be above-the-line, meaning they can be taken in addition to the standard deduction, or itemized, which means that in order to take the deduction you must forgo the standard deduction. Credits reduce the amount of tax that you owe.
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Hope Credit
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The Hope Credit allows you to claim a credit for the cost of qualified expenses for either yourself, your spouse or a dependent on your tax form. For 2009, you can claim a credit of up to 100 percent of the first $2,000 of qualified expenses and 25 percent on the next $2,000 of qualified expenses, for a total credit of $2,500 per student. You can use the credit multiple times in the same year. It can be taken only for the first four years of higher education. To be eligible, the student must be in classes at least half-time and be pursuing an undergraduate degree. If your modified adjusted gross income is between $80,000 and $90,000 for a single taxpayer or $160,000 and $180,000 for a couple, your credit is reduced. If it is over $90,000 for a single or $116,000 for a couple, you cannot take the credit. You cannot claim the Hope Credit if you take the Lifetime Learning Credit or the Tuition and Fees Deduction.
Lifetime Learning Credit
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The Lifetime Learning Credit allows you to claim a credit for the cost of qualified expenses for either yourself, your spouse or a dependent on your tax form. The Lifetime Learning Credit is a credit of 20 percent of educational expenses for up to $2,000 per year. It can be used only once per year, but it can be claimed in an unlimited number of years. You do not have to be pursuing a degree to take this credit. If your modified adjusted gross income is between $50,000 and $60,000 for a single or $100,000 and $120,000 for a couple, your credit is reduced. If it is over $60,000 for a single or $120,000 for a couple, you cannot take the credit. You cannot claim the Lifetime Learning Credit if you take the Hope Credit or the Tuition and Fees Deduction.
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Tuition and Fees Deduction
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If your income is too high to take the Lifetime Learning Credit or Hope Credit, you may still be able to take the Tuition and Fees Deduction. The limit for 2009 is $4,000. However, if your modified adjusted gross income is between $65,000 and $80,000 for a single or $130,000 and $160,000 for a couple, your deduction is reduced to $2,000. If it is over $80,000 for a single or $160,000 for a couple, you cannot take the deduction. The tuition and fees deduction can be taken for expenses you pay for yourself, your spouse or a dependent. You cannot claim the Tuition and Fees Deduction if you take the Lifetime Learning Credit or the Hope Credit.
Student Loan Interest
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Student loan interest is tax-deductible up to $2,500 per year as an above-the-line deduction. For you to be eligible, your modified adjusted gross income must be less than $75,000 if you are single or less than $150,000 if you are filing jointly with your spouse. Your deduction will be limited if your income is between $60,000 and $75,000 if you are single or $120,000 and $150,000 if you are married and file a joint return.
IRA Withdrawals
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If you have an Individual Retirement Account, you are able to withdraw money from your account for education without incurring the 10 percent early withdrawal penalty. For this exception, you can include room and board as qualified expenses as long as the amount is equal to or less than the room and board estimates made by the school in the cost of attendance.
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