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Is There a Tax Deduction for College Costs?

Aug 13, 2012

The costs of a college education these days is staggering. Thank goodness the IRS has available some good tax breaks to help keep the costs of college down.

In your 2011 tax year you were able to deduct up to $4,000 of college tuition and fees paid for you, your spouse or any other person claimed as a dependent on your tax return. Even better you were not required to have an itemized tax return to take advantage of this. But the $4,000 figure is not per person but is a family total.

Here's how it works:


You don't get the full deduction if you are unmarried with modified adjusted gross income above $65,000, or a joint filer with modified AGI above $130,000. However, if your modified AGI is between $65,001 and $80,000 for singles or between $130,001 and $160,000 for joint filers, you are entitled to a reduced deduction of up to $2,000.

You're completely ineligible if you're married and file separately from your spouse.


No deduction is allowed on the tax return of any person who can be claimed as a dependent on another's return. So your dependent college-age child can't claim the deduction when your own AGI is too high to qualify. You can't claim the deduction in the same year you claim the American Opportunity or Lifetime Learning tax credit for the same student. Note: this break expired at the end of 2011 but will probably be renewed for 2012 under the same rules explained above.

American Opportunity and Lifetime Learning Tax Credits


In 2012, the American Opportunity credit covers 100% of the first $2,000 of a college student's annual tuition and fees (no room and board costs) plus 25% of the next $2,000. So the maximum American Opportunity credit is $2,000 per qualifying student. Here's the downside, the American Opportunity credit can be claimed for only four tax years for any one student. It's unavailable after the student has logged four years' worth of academic hours. Also, the American Opportunity credit is allowed only when the student carries at least half of a full-time load for at least one academic period beginning in the year the credit is claimed.

The Lifetime Learning credit is less troublesome. It's mainly intended to help defray college costs after the first four years, when the American Opportunity credit is no longer allowed. The Lifetime credit is available for an unlimited number of years and without any requirement to carry a certain course load. Graduate courses are included in this credit. So are random classes not intended to lead to any sort of degree, such as professional training seminars and courses to update your software skills. The credit equals 20% of tuition and fees up to $10,000, for a maximum annual credit of $2,000.

Qualifying expenses for both the American Opportunity and Lifetime credits include post-secondary tuition and mandatory enrollment fees for you, your spouse, and any other person claimed as a dependent on your tax return.

The American Opportunity credit is phased out between AGI of $160,000 and $180,000 for joint filers; $80,000 to $90,000 for unmarried taxpayers. Those who use married filing separate status are completely ineligible. For 2011, the Lifetime credit is phased out between AGI of $104,000 and $124,000 for joint filers; $52,000 to $62,000 for unmarried taxpayers. You're completely ineligible if you're married and file separately from your spouse.





Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.comWant to be heard? Leave a reader comment below.

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