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4 Education-Related Tax Deductions and Credits for College Tuition & Expenses

By Kira Botkin

college grad moneyUnless you were born with a silver spoon in your mouth or the ability to perform a jump shot on par with LeBron James, your or your children’s college education is going to cost you. Public colleges cost an average of $22,261 per year, and private universities boast a massive average tuition price of $43,289. And according to the U.S. Department of Education, college seniors now graduate with an average of $28,186 in student loan debt.

Despite the fact that you cannot fully escape high tuition costs, there are ways to alleviate some of the financial burden. The Federal Government currently offers four tax credits and deductions that can save you bundles of cash at tax time.

Tax Deductions & Credits for College Students

1. American Opportunity Credit

Up to $2,500 Tax Credit, Four Years Maximum Per Student

To claim this credit, you must have paid educational expenses either for yourself or for one of your dependents at an eligible post-secondary institution, and the eligible student must not have completed the first four years of his or her post-secondary studies. Expenses include tuition, required fees, college text books, and other required class supplies. This is a direct dollar-for-dollar credit for the first $2,000 of eligible expenses; thereafter, you can recoup 25% of eligible expenses up to a maximum total credit of $2,500.

  • You can claim one credit per student, per year. Therefore, if you have multiple students, you can take this credit for each of them during the same year.
  • Your MAGI (modified adjusted gross income) must be less than $90,000 or less if filing single or head of household, or $180,000 or less if married filing jointly. However the amount of the credit you’re eligible for phases out once your MAGI exceeds $80,000 or $160,000, respectively. You cannot claim this credit if you are filing as married filing separately.
  • If you are due a refund, up to 40% of this credit can be refunded to you, for a maximum refund of $1,000.
  • The student must be enrolled at least half-time and have no felony drug convictions.
  • The academic period to which expenses pertain must have begun during the same year expenses were paid, or during the first three months of the following year. In other words, expenses paid in 2013 for classes that commenced in 2013 would be eligible if all other criteria are met. If you paid for classes in December of 2013 that started in January of 2014, these expenses would also be eligible. However, if you paid for classes in December of 2013, that started in May of 2014, you could not claim these expenses for the American Opportunity Credit for tax year 2013.

2. Lifetime Learning Credit

Up to $2,000 Tax Credit Per Return

The Lifetime Learning Credit allows you to get a tax credit for tuition, fees, and required books and supplies for classes taken at any qualified educational institution. This tax credit does not have a limit on the number of years that it can be taken. If you continue to have eligible expenses, you can take this credit each year indefinitely. Unlike the American Opportunity Credit, the student does not need to be enrolled in a degree-seeking program. Furthermore, he or she can be a graduate student, and you can get this credit for just a single class. You can deduct expenses paid for yourself, your spouse, or for any of your dependents.

  • This credit is not refundable. You can only get your tax burden reduced with this credit – you can not get a refund in excess of the amount of tax you owe.
  • The $2,000 maximum benefit covers qualifying expenses paid for yourself, your spouse, and your dependents. It’s simply based on expenses accrued, and does not take into account the number of students. If more than one person is taking classes, you may get more benefit from the American Opportunity Credit, which you can claim on a per student basis.
  • You cannot claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student. However, if two students have qualifying education expenses, you may claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other.
  • Your MAGI must be less than $63,000 if filing single or head of household, or less than $127,000 if married filing jointly. You cannot claim this credit if you file as married filing separately.
  • Students with a past felony drug conviction are eligible.
  • The academic period expenses are claimed for must have commenced during the same tax year or within the first three months of the next year (usually the current year, unless filing an amended return).

3. Tuition and Fees Deduction

Up to $4,000 Tax Deduction Per Return

The tuition and fees deduction allows you to take up to $4,000 off your taxable income per year. You can deduct tuition, fees, and required expenses paid to qualified educational institutions, and you do not have to itemize your deductions to receive this benefit. The expenses must be paid for you, your spouse, or your dependents. There is no limit on how many years you can take this deduction.

  • Your MAGI must be $80,000 or less if single or head of household, and $160,000 or less if married filing jointly. You cannot take this deduction if you are filing as married filing separately or if you can be claimed as a dependent on someone else’s return.
  • You are limited to a deduction of $4,000, even if you have multiple students in the family.
  • This deduction can be valuable if you’re unable to take the Lifetime Learning Credit because your income is too high.
  • The academic period expenses are claimed for must have commenced during the same tax year or within the first three months of the following year.

4. Student Loan Interest Deduction

Up to $2,500 Tax Deduction Per Return

You can deduct up to $2,500 for interest you paid during the year on qualifying student loans, and you do not need to itemize to take this deduction. Qualifying educational loans can be taken on behalf of yourself, your spouse, or your dependents. However, you cannot deduct interest on loans you are not currently paying on – whoever pays the interest gets the deduction. Furthermore, you’re not eligible to deduct student loan interest if you are claimed as a dependent on someone else’s return. For example, if you claim your child as a dependent and they are paying the interest on a qualifying student loan, neither one of you can take the deduction.

  • Your MAGI must be less than $75,000 (single, head of household) or $150,000 (married filing jointly)
  • You cannot deduct interest on a loan made to you by a relative or your employer.
  • The loan must have been used to pay for tuition, fees, books, or housing expenses.
  • Housing expenses qualify only up to the actual cost of housing and meals at the university, or an amount determined by the educational institution that was included in the federal financial aid determination. (If the student took out extra loans to cover a higher housing expense than what was set as the allowance by the institution, those amounts are not eligible.)
  • The determination of eligibility of an institution is made only at the time that the loans are taken out – if they subsequently lose eligibility, it doesn’t affect whether you can deduct the loan interest.
  • You can also deduct loan origination fees at the time the loan was made, and you can deduct credit card interest if the credit card is used solely for eligible academic expenses.
  • You cannot deduct student loan interest if you or your spouse can be claimed as a dependent on someone else’s return, nor if your filing status is married filing separately.

Final Word

It is important to understand that you cannot use the same expense twice to claim different credits or deductions. For example, if you take a tax deduction for educational expenses as a business expense, you cannot also deduct it as an educational expense or use it to claim an educational credit. Speak with an experienced tax preparer if you need help determining the best way to deduct eligible expenses.

Did you or one of your family members attend school in the past year? Which education-related tax deductions are you eligible for?

Kira Botkin
Kira is a longtime blogger and serial entrepreneur who enjoys gardening, garage sales, and finding stray animals. She lives in Columbus, Ohio, where football is a distinct season, and by day runs a research study for people with multiple sclerosis. She hopes that the MoneyCrashers team can help you achieve your goals and live a great life.

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