Tax Topic

Education Benefits

The tax code provides a few ways to help families and students with higher education expenses.

The American Opportunity Credit can be for up to $2,500 per student per year (100% of the first $2,000 plus 25% of the next $2,000). The credit applies to the first four years (previously just the first two years) of post-secondary education. The modified adjusted gross income (MAGI) phase-out ranges are $80,000 - $90,000 for single filers and $160,000 - $180,000 for joint filers. The credit includes expenses for course materials (all books, fees, supplies and equipment) along with tuition. If the credit is more than your income tax liability, 40% of it is refundable and the full credit is allowed against the Alternative Minimum Tax.

The Lifetime Learning Credit is a nonrefundable credit up to $2,000 (per tax return) of tuition plus any fees, supplies and books purchased directly from the school as a condition of enrollment (so NOT standard textbooks if not purchased from the school) (20% of up to $10,000) paid for students for an unlimited number of years. It is available for both degree and non-degree students. The MAGI phase-out ranges are $57,000 - $67,000 for single filers and $114,000 - $134,000 for joint filers.

You get to use only one of the above education credits per student, per year. We will use the information you give us to determine which option will yield the lowest tax liability for you, just make sure you give us the information such that we can tell what portion is tuition, books/fees from the school, books/fees not from the school, and room & board, all by student.

The American Recovery Act broadened the Section 529 plan to allow for the reimbursement of computers, software and services along with tuition, books, fees, and supplies. Also, room and board while in school. This does not apply to the deductions and credit above, rather it defines "qualified education expenses" which can be covered by distributions from 529 plans.

Here is a link to the IRS Tax Benefits for Education: Information Center:

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