Anyone who is going through college or has a child attending college knows how expensive getting a higher education can be. With tuition, fees, and books expenses rising every year, paying for college can get pretty overwhelming. Luckily, Uncle Sam realizes this and wants to help Americans lessen this burden by offering two tax credits to reduce their tax bill.
The first credit is the American opportunity credit. This credit takes off $2,500 from your tax liability. Also, up to 40% of this credit is refundable, which means you could get up to $1,000 back if you don’t owe any taxes.
To qualify for the American opportunity credit, you had to have incurred the expenses during the first four years of college and had to have been enrolled for at least half-time for each semester. There are also income limits on who can claim this credit. If you are a single filer you can earn up to $80,000 ($160,000 for married filing jointly) to still be eligible to take the credit.
The second credit is the Lifetime learning credit. This credit allows for a nonrefundable 20% tax credit for up to $10,000 of qualified educational expenses. Unlike the American opportunity credit, this credit may be claimed for an unlimited number of years, and you don’t have to enroll for at least half-time every semester.
To use the Lifetime credit, your modified Adjusted Gross Income must be less than $51,000 for single or $102,000 for joint filers.
For both credits, you must pay the tuition and fees for yourself, your spouse or your dependant. These credits may be claimed by either the parent or the student, but never both. Also, if the student meets the requirements to claim both of the credits, then you must choose only one.
Paying for college can get really expensive really fast. Fortunately, our government recognizes the value of higher education and offers tax reliefs in the form of these two credits. So, if you had any college expenses last year, consider looking into the American opportunity and the Lifetime learning credit to see if you qualify to take these deductions and reduce your tax bill.