There are several tax incentives in the form of credits and deductions currently available to help offset ever increasing higher education expenses for you, your spouse, and dependents.
Currently there are two tax credits available.
The first is the American Opportunity Tax Credit. This credit is available to qualified students for their first four years of higher education. The credit is computed by taking 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000. The maximum credit is $2,500 per student. Up to 40% of this credit is refundable, meaning that if the credit reduces your tax to zero, 40% of the unused credit will be refunded to you.
The second is the Lifetime Learning Credit. This credit is available to qualified students for eligible expenses, such as graduate school, that are not covered by the American Opportunity Tax Credit. The credit is 20% of eligible expenses. The maximum credit is $2,000 and unlike the American Opportunity Credit, it is on refundable.
You cannot claim both credits in the same year.
Tuition and Fees Deductions
This deduction is for qualified expenses up to $4,000. This is an adjustment to income so you do not have to itemize deductions in order to take advantage of this.
This deduction can be taken instead of (but not in addition to) one of the credits discussed above.
Each of the credits and deductions is subject to its own eligibility requirements and income limitations. Your situation should be analyzed carefully to determine which choice is the right one for your situation.
As always, this is only meant as a brief overview. If you feel that we can be of further assistance to you, please contact our office to set up an appointment.
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- Doherty & Associates Team