How to Use College Tuition as a Tax Deduction

Video Transcript

"My name is Julie Asti and I am a Certified Financial Planner with Asti Financial Management and today I am going to talk about using college tuition as a tax deduction. There are really two main ways to deduct college tuition from your taxes. The first is a hope credit and the second is a life time learning credit. With both a hope credit and a life time learning credit are going to be subject to adjusted gross income limitations so you need to check with the IRS as these amounts change every year to find out if you are going to be in a phase out, if you are going to be earning too much to take the credit or if your income is below the levels where you can't take the full credit. Both of these are an actual tax with credit versus a deduction and what that means is that you will be able to take dollar for dollar off of the taxes that you would owe for these two credits so it is not like a deduction where it is a percentage of your income it is going to come dollar for dollar off of the tax liability that you owe. The first is going to be a hope credit and with a hope credit you can claim up to $1,650 for each eligible dependent on your tax return for the two years that a student is going to be in college so the hope credit you can only use for two years. So if a student goes to school for five years you can only apply it for two years. It is going to be for $1,650 expenses that you have spent on college tuitions. You can deduct dollar for dollar off of your taxes. The second type of credit is going to be a life time learning credit and the good thing about a life time learning credit is there is no limitation. You can take a a credit and you can use the credit for every year that you are going to have an eligible dependent in college. The lifetime learning credit works a little bit differently in that you can deduct 20% of the first $10,000 of college expenses for a maximum of $2,000 so for example if you were going to have college tuition that was going to be costing $5,000 in one year, 20% of $5,000 is only $1,000 so you would only be able to take $1,000 credit so it works as a percentage at the amount of tuition that you are going to be paying on an annual basis but you can use it for the amount of time that a student is going to be in college and for both of these credits they must be eligible dependents so if you have an adult child that is going to school and helping to support themselves and they are filing their own taxes and they are not a dependent, you are not going to be able to take either one of these credits. That is some information on how to take college tuition as a credit on your tax return. My name is Julie Asti. I'm with Asti Financial Management and you can learn more about my company and my services on line at www.astifinancial.com."