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Education Tax Breaks: A Refresher Course

D Cator 2014
Donna L. Cator, CFP®, CDFA®
Vice President, Wealth Advisor
[email protected]
(585) 394-4260 x50623

If you’re helping a child pay for college or taking some college courses yourself, study up on these tax breaks.

Two Credits for Higher Ed Expenses

The American Opportunity Tax Credit is available for the first four years of post secondary education. The credit is 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000 up to a maximum of $2,500 per eligible student (i.e., a student enrolled at least half-time in a degree or certificate program; other restrictions apply). The credit phases out for taxpayers with modified adjusted gross income (AGI) between $80,000 and $90,000 ($160,000 and $180,000 on a joint return).

The Lifetime Learning Credit is broader in scope. In addition to covering undergraduate courses, it can be used for expenses related to graduate school and courses taken at eligible institutions that help students acquire or improve their job skills. The maximum credit is $2,000 per taxpayer return and may be available for a student taking a single course. The credit phases out with modified AGI between $53,000 and $63,000 ($107,000 and $127,000 on a joint return).

Note: You can’t claim both credits for the same student’s expenses in the same tax year. You also can’t claim expenses that are paid for with distributions from a Coverdell education savings account or a qualified tuition program (529 plan).

Or There’s a Tax Deduction

In some instances, the higher education expense deduction may be a better choice. Married taxpayers filing jointly with modified AGI of up to $130,000 a year ($65,000 for unmarried taxpayers) may deduct up to $4,000 in qualified tuition and fees for themselves or their tax dependents. The maximum deduction is $2,000 if modified AGI is above $130,000 ($65,000 for unmarried taxpayers) but not more than $160,000 ($80,000 if unmarried). No deduction is available once modified AGI exceeds $160,000 ($80,000). You don’t have to itemize to claim the deduction.

Note: The higher education expense deduction is scheduled to expire at the end of 2013.

Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank & Trust nor its affiliated Companies provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.