Are you heading to college this fall? Or, perhaps your spouse or child is college bound. Believe it or not, education costs can actually save you money at tax time if you are eligible for education tax credits.
The IRS offers two types of education tax credits to help students and their parents with expensive college costs. The American Opportunity and Lifetime Learning credits can be subtracted from the federal income tax, not just deducted from taxable income.
Let’s take a closer look at each credit.
American Opportunity Tax Credit:
Amount: $2,500 per year for an eligible student
Length: First four years of higher education
Bonus: Forty percent of the credit is refundable so you can get up to $1,000 as a refund even if you do not owe any taxes
Lifetime Learning Credit:
Amount: Up to $2,000
Length: No limit on the number of years you can claim it for an eligible student
Did you know:
One credit per student: You can only claim either the American Opportunity or Lifetime Learning credit, not both. If more than one student qualifies, you can claim a different credit for each student.
Qualified expenses: The costs you pay for tuition, fees and other related expenses can be used to determine your credit.
Form 1098-T: Your school should send this form that reports your qualified expenses by Feb. 1, 2016. The amount shown on the form may differ from the cost you actually paid because of related costs. such as textbooks, may not appear on the form. You can still include those costs.
Income limits: Education credits may be reduced or eliminated based on your income. Visit IRS.gov to see if you are eligible.