When to Claim a Child in College on a Tax Return?

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Funding a college education can be one of the most expensive challenges of raising a child. The Internal Revenue Service can help, however -- at least to some extent. The IRS offers two tax credits and an extended dependency exemption that can leave you with more of your income at tax time to pay the costs of education.

The Dependency Exemption

  • Parents can claim college students as dependents beyond the usual cutoff age of 19. This can reduce your taxable income even before you begin tallying up what you spend on tuition and fees to qualify for a tax credit. Your child must be younger than 24 on December 31 of the tax year. He must attend college full time for at least five months of the year and reside in your household for more than half the year, but time he spends away at school doesn't count as not living with you. The IRS considers this a temporary absence.

The Lifetime Learning Credit

  • If your child qualifies as your dependent, you may be eligible to claim the lifetime learning credit for education expenses you pay on his behalf. The credit equals 20 percent of qualified education expenses you pay up to $10,000, so the maximum credit is $2,000. Qualified expenses include tuition and equipment, books, activity fees and supplies if purchasing them is mandatory for enrollment. Room and board, insurance, transportation and health fees aren’t considered qualified expenses.

    Your modified adjusted gross income must be less than $64,000 if you’re a single taxpayer, or $128,000 if you’re married and file a joint return. If your MAGI falls between $54,000 and $64,000, or $108,000 and $128,000 if you file a joint return, the credit begins phasing out.

The American Opportunity Credit

  • The American opportunity credit is another tax credit available to parents of college students. It's equal to 100 percent of the first $2,000 you spend and 25 percent of the next $2,000 as of the time of publication. Just as with the lifetime learning credit, the expenses you pay must be qualified. Unlike the lifetime learning credit, the American opportunity tax credit is partially refundable. If claiming it reduces your tax liability to zero, you’ll get a refund of 40 percent of any balance left over, up to $1,000.

    You can’t claim both the American opportunity credit and the lifetime learning credit -- you must choose one or the other. The American opportunity credit can take up to $2,500 off your tax bill if your MAGI is $80,000 or less, or $160,000 if you’re married and filing jointly. If your MAGI is higher than this, you’re still eligible for a reduced credit unless your MAGI is more than $90,000 or $180,000 for married couples. In this case, you can’t claim the credit.

Deductions for Tuition, Fees and Student Loans

  • The IRS offered a tuition and fees tax deduction for qualified education costs paid through December 31, 2014. Technically, this deduction expired at that time, but Congress may breathe new life into it so consult with a tax professional if you’re considering claiming it.

    The student loan interest deduction is still alive and well. You can deduct $2,500 of interest you pay for your dependent during the tax year if your MAGI is $65,000 or less, or $130,000 for married taxpayers filing jointly. Then it begins phasing out. If your MAGI is $80,000 or more, or $160,000 for joint filers, you can't claim this deduction.

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