If you, your spouse or a dependent are heading off to college in the fall, some of your costs may save you money at tax time. You may be able to claim a tax credit on your federal tax return. Here are some key IRS tips that you should know about education tax credits:
- American Opportunity Tax Credit.
The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
- Lifetime Learning Credit.
The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
If more than one student qualifies for a credit in the same year, you can claim a different credit for each student and choose whichever the credit results in greater tax savings. For instance, you can claim the AOTC for both students if both of them are qualify for AOTC.
- Tuition and fees deduction.
The tuition and fees deduction is currently no longer available in 2018. It was extended for tax year 2017 by Congress through passing the Bipartisan Budget Act of 2018. The Tax Cuts and Jobs Act (TCJA) did not extend the tuition and fees deduction; we will have to wait and see if Congress will extend it near year end.
If this break is extended for 2018, it can reduce the amount of your income subject to tax by up to $4,000.
You may be able to deduct qualified education expenses for higher education paid during the year for yourself, your spouse or your dependent, UNLESS:
- your filing status is married filing separately;
- another person can claim an exemption for you as a dependent on his or her tax return;
- your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return);
- you were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes; or
- an education credit is claimed for expenses of the student for whom the qualified education expenses were paid.
You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student. To find out more on the rules that apply to each credit, contact one of our professionals today.
- Eligible educational institutions.
Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible, ask your school if it is an eligible educational institution or see if your school is on the U.S. Department of Education’s Accreditation database.
In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year. If someone else pays such expenses on your behalf, (like a parent), you still receive “credit” and therefore receive form 1098-T.
If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes. To find out more about your F-1 Student Visa status, visit U.S. Immigration Support. To learn more about resident and nonresident alien status and restrictions on claiming the education credits, refer to Publication 519, U.S. Tax Guide for Aliens.
These credits are subject to income limitations and may be reduced or eliminated, based on your income.
Contact one of our professionals to see if you are eligible to claim education credits.