As parents and students prepare to bear the expenses for
higher education, they may bring down their education expenses by using certain
tax credits. These credits have been introduced by the IRS to make higher
education more accessible and less financially burdensome for students and
parents.
American Opportunity
Credit
This credit is available until 2017 and provides an eligible
student the maximum credit amount of $2,500. Required course materials can also
be deducted as a qualifying expense. Other qualifying expenses include tuition
fee, course-related books, supplies and equipment. The credit can be claimed
for all four post-secondary education years.
Individuals with a modified adjusted gross income of $80,000
or less, or married couples filing jointly with the modified adjusted gross
income of $160,000 or less can get the full credit. For those with higher
income levels, the credit is phased out.
Lifetime Learning Credit
Students can claim a credit of up to $2,000 for qualified education
expenses if they are studying in an eligible education institution. The term
‘lifetime’ is used for this credit because it has no limit as to the number of
years it can be claimed by a student. It must be noted that a student cannot
claim both the Lifetime Learning Credit and the American Opportunity Credit for
a year.
A student, parent or a qualifying individual can claim the Lifetime
Learning Credit only if:
- · You pay qualified education expenses for the higher education of an eligible student
- · The eligible student is either you, your spouse or a dependent for whom you can claim a tax exemption
Lifetime Learning Credit is suitable for students who are only taking
one course, whereas American Opportunity Credit is suitable for those pursuing
a degree. Either of the two credits can be claimed for a year. In case of two
or multiple students, you can claim one credit for each student in the same
year.