College students will be happy to know that there are several tax deductions they can make on federal income tax returns for college expenses and textbooks. Such tax deductions include the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, and Tuition and Fees Deduction. Students can take advantage of only one tax break on their tax returns, as there are coordination restrictions to prevent taxpayers from double-dipping for the same student. Take a look at what college expenses taxpayers can deduct and how these tax credits work.
The American Opportunity Tax Credit (AOTC) is a partially refundable tax credit up to $2,500 per student annually. This tax credit covers 100 percent of the first $2,000 in tuition, fees, and course materials per student, and 25 percent of the second $2,000. If a taxpayer can’t be claimed by someone else as a dependent on their tax return, the AOTC is 40 percent refundable. Nonacademic fees like activity fees and insurance aren’t considered qualified expenses. The AOTC is only claimable for the four years of postsecondary education and four tax years per student.
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The Lifetime Learning Tax Credit (LLTC) is worth up to $2,000 per taxpayer and covers 20 percent of the first $10,000 in tuition and fees. Nonacademic fees like student activity and athletic fees are considered qualified expenses so long as they are paid directly to the learning institution to confirm enrollment or attendance. The LLTC can be claimed for an unlimited number of years. To qualify for this tax credit, students don’t have to seek a degree or certificate, must be enrolled in a Title IV federal student aid institution, and can be enrolled part time. This tax credit is ideal for graduate or professional students who don’t qualify for the American Opportunity Tax Credit.
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Another tax deduction that taxpayers can take advantage of is the Tuition and Fees Deduction. This is an above-the-line exclusion from income for up to $4,000 in tuition and fees. Taxpayers within the income phaseout ranges have a reduced deduction of $2,000. It’s possible to deduct course materials costs provided they were paid directly to the learning institution as a requirement for enrollment or attendance. This deduction can be claimed for an unlimited number of years.
Other deductions can be made on tax returns; however, these have income phaseout ranges. These deductions include employer-paid educational assistance, tuition gift tax exclusion, qualified scholarships, education savings bond programs, college savings plans and prepaid tuition plans, and Coverdell education savings accounts.
Use these tips for tuition deduction when filing your taxes.