With three of my grandchildren currently attending college, I thought this to be a good time to revisit some of the most lucrative tax breaks out there for college students and/or their parent(s).
In the last three decades, college enrollment has increased 11%, while tuition has shot up 200%, a recent report finds (see http://www.nerdwallet.com/blog/investing/2013/73-retirement-norm-millennials/) Today’s college students will graduate into a mediocre job market with median student loan debt of $23,300.00 (see http://www.businessinsider.com/millennials-may-not-be-able-to-retire-until-age-73-2013-10).
Facing such bad odds and with the national student debt nearing $1 trillion, it has never been more important for the college students as well as recent grads to keep as much of their earnings as possible. Yet the US Government Accountability Office (see http://www.gao.gov/assets/600/590970.pdf) reported that Americans left behind nearly $800 million in college tuition tax benefits back in 2009 — an average of $466 per person.
The 4 Tax Breaks:
The American Opportunity Credit. Students are eligible to claim up to $2,500 for the first four years of post-secondary education. And since 40% of the credit is refundable, that means students can get back up to $1,000 on their refund — even if they don’t owe any taxes, according to the IRS. What qualifies: Tuition and fees, course-related books, supplies, and equipment. Income: Couples filing jointly who earn less than $160,000; single-filers who earn less than $80,000.
The Lifetime Learning Credit. Students earning less than $60,000 (single-filers) or $120,000 (married, filing jointly), can claim up to $2,000 education-related expenses.
Tuition and fee deductions. Like the American Opportunity Credit, students earning less than $80,000 (single) or $160,000 (married, filing jointly) can deduct up to $4,000 in tuition and fees on their annual tax returns. Use it while you can — this tax break is set to expire at the end of 2013 unless lawmakers extend it.
Student loan interest deduction. If you’ve taken out a federal or private student loan, you’re eligible to deduct up to $2,500 worth of interest paid on the loan as an “above-the-line” exclusion from your income. You don’t have to itemize your deductions in order to claim it.
Note: College students can only claim one of the above tax credits per year, but parents supporting more than one child in college can claim tax credits on a per-student basis.