Tax Breaks

Tax Credits for College Costs

Paying for college will be a little easier if you qualify for one of these two tax credits.

Question:

My daughter will be starting college this fall. Can we get a tax break for paying for college?

Answer: You may get a tax credit for paying her college tuition, depending on your income.

If your modified adjusted gross income is below $180,000 for married couples filing jointly or $90,000 for single filers, then you can claim the American Opportunity Credit for college-tuition bills. The credit is worth up to $2,500 per eligible student, based on 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000. The size of the credit is reduced if your income is more than $160,000 for joint filers or $80,000 for single filers. (A credit reduces your bottom-line tax bill dollar for dollar. And with the American Opportunity Credit, if you don’t owe any taxes, you can get up to 40%—or $1,000—of the credit refunded to you.)

Eligible expenses include tuition, fees and required books during the first four years of college. To qualify, your daughter must be attending school at least half-time for at least one academic period during the year.

Students who are not attending college at least half-time or who are beyond their first four years of college—graduate school students, for example—may qualify for the Lifetime Learning Credit instead. This credit is worth 20% of the first $10,000 in qualified education expenses, up to a maximum of $2,000 per return. To qualify for the credit in 2018, your modified adjusted gross income must be less than $134,000 if married filing jointly or $67,000 if single. The size of the credit starts to phase out if income is higher than $114,000 for married couples or $57,000 for singles. There is no limit to the number of years that you can claim the Lifetime Learning Credit. Unlike the American Opportunity Credit, though, the Lifetime Learning Credit is not refundable.

For more information, see IRS Publication 970, Tax Benefits for Education. Also see the IRS’s Education Credits: Questions and Answers.

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