Don't Miss These Education Tax Breaks
If you have a college student in the family, no one needs to tell you about the high price of higher education. But you may be able to cash in on some tax breaks when you file your 2008 return that could ease the pain.
Generally, the lower your income, the bigger the tax break. Plus, there are additional tax benefits for students who attend eligible colleges and universities in the Midwestern disaster area during 2008 and 2009.
Hope Credit. You can claim a tax credit of up to $1,800 per student for tuition and qualified fees during the first two years of college. To be eligible for the full credit, you’re income can’t exceed $48,000 if you are single and $96,000 if you are married filing jointly. A partial credit is available for individuals with income of up to $58,000 and married couples with incomes up to $116,000.
Lifetime Learning Credit. Or, you can claim a tax credit of up to $2,000 per return for post-secondary education or courses to improve job skills. The income eligibility limits are the same as the Hope Credit.
Midwestern disaster area. For students attending college in the designated disaster areas of 10 Midwestern states -- Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin -- the amount of the qualified tuition expenses eligible for either the Hope or Lifetime Learning credit is doubled. That means they may claim a Hope Credit of up to $3,600 during their first and second year of college or a Lifetime Learning Credit of up to $4,000 for 2008. (The doubled tax credits apply to 2009 as well.)
Tuition deductions. Even if you earn too much to qualify for the Hope or Lifetime Learning Credits, you may still be able to claim a tuition deduction whether or not you itemize. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a tax deduction which merely reduces the amount of income subject to tax.)
If you are single and your income is $65,000 or less or if you are married and your joint income is $130,000 or less, you can deduct up to $4,000 in college tuition and qualified expenses. If you are single and your income is between $65,000 and $80,000 or if you are married and your joint income is between $130,000 and $160,000, you can deduct up to $2,000 in qualified tuition expenses for 2008.
This is an "above the line" deduction, which means it reduces your adjusted gross income (AGI). Officially known as an adjustment to income, you get to subtract above-the-line deductions to arrive at your AGI. That's important since reducing your AGI may preserve tax deductions and credits that otherwise might be reduced or eliminated at higher levels.