The cost of higher education increases every year. If you pay these expenses for yourself or someone else, you know just how cumbersome they can be. Fortunately, federal tax law provides a few breaks to help taxpayers compensate for these costs.
Lifetime Learning Credit
The Lifetime Learning Credit is available to taxpayers who pay for themselves, a spouse or a dependent to attend at least one higher education course during the year. You can claim this credit regardless of how many credit hours the student takes, and the IRS doesn’t require the student to be enrolled in a degree program to qualify. In addition, the Lifetime Learning Credit is available whether you paid the expenses for undergraduate, graduate or continuing education.
The maximum credit amount for 2013 is $2,000. However, your maximum credit amount will be less if your modified adjusted gross income is greater than $53,000 as a single filer and $107,000 as a joint filer. If you qualify for the credit, you can include the cost of tuition, educational fees and any books or supplies you are required to purchase directly from the institution.
American Opportunity Credit
With the American Opportunity Credit, you can claim as much as $4,000 worth of educational expenses you pay during the year per eligible student. The maximum credit is $2,500 per student. To qualify for this credit, the student must be you, your spouse or a dependent who is attending college at least half time. The student must also be working toward a degree at a higher education institution, and he or she must not have been enrolled in higher education for more than four years.
If you qualify for this credit, you can include costs you pay for tuition, educational fees, supplies, books and equipment the institution requires you to purchase. Up to $1,000 of this credit is refundable. However, if your modified adjusted gross income exceeds certain limits, you may not qualify for the full $2,500 credit. For 2013, credit phase outs begin at $80,000 if you file alone and $160,000 if you file jointly.
Tuition and Fees Deduction
In addition to education credits, the IRS also offers a tuition and fees deduction. Unlike a credit, which directly reduces the amount of tax you owe, a deduction lowers your taxable income. You can claim the tuition and fees deduction if you paid qualifying educational fees for yourself, a spouse or a dependent who attended an institution of higher education during the year.
If you qualify for this credit, you can deduct up to $4,000 worth of expenses from your taxable income. However, if your modified adjusted gross income is greater than $65,000 for single filers or $135,000 for joint filers, your maximum deduction will be reduced. Deductible expenses include tuition and any other fees the institution requires for attendance. You can claim this deduction whether or not you itemize your expenses.
Things to Remember
- You can claim only one educational benefit per year, per student.
- You cannot claim an education benefit for yourself if you are listed as a dependent on someone else’s return.
- If you claim either of the education credits, you must attach Form 8863 to your tax return.