Education Tax Incentives
Get federal income tax relief and take advantage of education-related tax credits and deductions. These benefits can significantly reduce your tax liabilities, by thousands of dollars in some cases.
AMERICAN OPPORTUNITY TAX CREDIT
The American Opportunity Credit could provide you with a partially-refundable income tax credit of up to $2,500 per eligible student.
LIFETIME LEARNING CREDIT
You may be able to claim a non-refundable Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the Lifetime Learning Credit can be claimed with respect to any student.
TUITION AND FEES DEDUCTION
You can reduce income subject to tax by up to $4,000 for tuition and related expenses.* Qualifying expenses are the tuition and fees required for enrollment or attendance at an eligible college, university, or vocational school. You, your spouse, or your dependent must have incurred these expenses.
You do not need to itemize deductions in order to be eligible for this deduction.
STUDENT LOAN INTEREST DEDUCTION
If you took out student loans, you may be able to deduct up to $2,500 in interest paid yearly. To qualify, you should have used proceeds from the loan toward qualified higher education expenses, including tuition, fees, room, board, supplies, and other related expenses by you, your spouse, or dependent.
To claim this deduction, taxpayers must file federal tax Form 1040 or 1040A; you do not need to itemize deductions.
For more information on the tax credits and deductions available for education-related expenses, see IRS Publication 970, Tax Benefits for Education, at www.irs.gov.
Note: All information on this page is believed to be correct as of January 2010. It provides general information and should be used for comparison purposes only. You may wish to talk to a tax advisor for help in determining which tax benefit is best for you. Also, IRS Publication 970 has more specific information.
*Related education expenses may include student activity fees and expenses for course-related books, supplies, and equipment, but only if these fees must be paid directly to the college or university as a condition of enrollment or attendance.
The definition of qualified education expenses is also expanded for students in Midwestern disaster areas. In addition to tuition and fees required for enrollment, qualified education expenses for students in the above areas include the following:
- Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
- For a special needs student, expenses that are necessary for that person’s enrollment or attendance at an eligible educational institution.
- For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the allowance for room and board that was included in the cost of attendance or the actual amount charged if the student is residing in housing owned or operated by the institution.