Education Tax Benefits
There are several money-saving tax benefits available to
taxpayers paying for higher education. Remember that a tax deduction
reduces the amount of income subject to tax before the tax is
determined. Tax credits reduce the amount of tax after the tax is
calculated.
STUDENT LOAN INTEREST DEDUCTION
Borrowers paying interest on eligible student loans may deduct up to
$2500 of the interest paid. Eligibility is based on the following:
the loan must have been used to pay for a student's tuition and
other higher education expenses. Eligible expenses include tuition,
fees, room and board, books, supplies, equipment, and other expenses
including transportation.
Hampshire College does not and cannot advise individual borrowers as
to whether and how much in student loan interest they can deduct. To
determine whether they can benefit from the deduction borrowers
should consult a qualified tax advisor or accountant or contact the
IRS directly.
TUITION & FEES DEDUCTION
You may be able to deduct the cost of higher education for yourself,
your spouse, or a dependent, even if you do not itemize deductions
on Schedule A, Form 1040. The Tuition & Fees Deduction can reduce
the amount of your income subject to tax by up to $4000.
THE HOPE SCHOLARSHIP CREDIT
You can receive a tax credit of up to $1500 per eligible student for
a taxpayer paying education-related expenses during a student's
first two years of college. The amount of the credit depends on the
annual income of the taxpayer. The student must be enrolled at least
half-time in a degree or certificate program, have not completed the
first two years of college, and do not have any felony drug
convictions. Qualified expenses include tuition, fees, books,
supplies and equipment. Not included are room and board,
transportation, and other living and medical expenses.
The student must be listed as a dependent on your return in order to
claim the Hope Scholarship Credit. Since the Hope tax credit is
figured per student, a taxpayer with two dependents enrolled in the
first or second year of college may claim a credit for each
individual dependent student.
LIFETIME LEARNING CREDIT
You may also claim a Lifetime Learning Credit of up to $2000 after
the first two years of college if you pay for the education-related
costs. The credit amount depends on the income of the taxpayer.
Eligible students must be enrolled in at least one course, but do
not need to be pursuing a degree. This tax credit is equal to 20% of
the first $10,000 of qualified expenses paid. Qualified expenses
include tuition, fees, books, supplies, and equipment. Not included
are room and board, and other living and medical expenses. A student
must be listed as a dependent on your return in order to claim the
credit. Keep in mind that this credit is figured on the basis of one
credit per tax return, regardless of how many dependent students are
involved and there is no limit on the number of years this credit
can be claimed for each student.
OTHER TAX BENEFITS AVAILABLE
There are additional ways that one may use higher education expenses
toward tax credits or tax deductions such as IRA withdrawals,
Employer-provided educational assistance, and Coverdell Education
Savings Accounts.
To learn more about the information listed above, please contact the
IRS directly or review the IRS Publication 970 on Tax Benefits for
Education. The IRS may be contacted by phone at 800-829-3676 or
visit on-line at www.irs.gov/pub/irs-pdf/p970.pdf .
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