Tax Deductions & Credits Explained For Parents Of College Students
It is common knowledge that college can be quite costly these days. To assist in making college more
affordable for both students and parents, the IRS offers a variety of tax deductions and tax credits to
defray the cost of a higher education. If you are the parent of a current or upcoming college aged child,
the IRS has many new ways to help you save money! The various tax deductions and tax credits available
to offset college costs are outlined below.
The American Opportunity Credit is the most current and updated tax benefit available! It is considered
to be more beneficial than its predecessors, the Hope Scholarship and the Lifetime Learning Credit. It is
also more valuable than the tax break provided by the Tuition and Fees Deduction. As a provision of the
well known Fiscal Cliff deal, the American Opportunity Tax Credit was made available to taxpayers for
five more years. This being the case, it is vital that parents of high school and college students become
acquainted with this tax credit as it can amount to a significant savings.
The American Opportunity Credit was designed to help parents and students offset some of the cost
of the first four years of college. Eligible taxpayers can qualify for a maximum yearly credit of $2,500
per student. That is a $10,000 tax subsidy over a four year period. Those ineligible for the credit include
families that claim $160,000 to $180,000 on jointly filed returns or $80,000 to $90,000 for single filers
and the heads of the household. The fact that 40% of the credit is refundable means that it is possible
for a taxpayer who has no tax liability to receive a maximum refund of $1,000.
The Hope Credit is a non-refundable tax credit that can be used to defray part of the cost of the first two
years of college (or any type of post-secondary school). This credit generally applies to tax years prior
to 2009 when the Hope Credit was mostly replaced by the American Opportunity Credit created by the
American Recovery and Reinvestment Act. In order to qualify for the Hope Credit, the student has to be
enrolled at least half time. The credit covers the payments for the first two years of tuition and like-wise
expenses for an eligible student that the taxpayer claims as an exemption on the tax return. Usually one
can claim tuition and enrollment fees paid for your own, as well as your dependents’ college educations.
The Lifetime Learning Credit is a credit that is available to assist with the cost of undergraduate,
graduate and even certified professional courses (this includes classes taken to improve job skills!
) regardless of the number of years it takes to complete the program. This is another credit in which
the taxpayer is able to claim up to $2,000 towards qualified educational expenses. The credit can be
beneficial to graduate students and even working professionals who want to take an improvement class.
In addition to the credits explained above, qualified students can claim a deduction, called the Tuition
and Fees Deduction, for enrollment fees and tuition expenses in amounts up to $4,000. This deduction
is considered an adjustment to income, which basically means that the deduction will lower the amount
of income subject to tax. The Tuition and Fees Deduction is very helpful for those taxpayers who do not
qualify for The American Opportunity Credit, the Hope Credit or the Lifetime Learning Credit.
It is important to note that a taxpayer cannot claim both the Hope Credit and the American Opportunity
Credit or the Lifetime Learning Credit for the same student in the same year. You also may not claim
any of the three education credits if you claim a Tuition and Fees Deduction for the same student in the
same year. Any of these educational tax benefits can be claimed by either the parent or the student (as
long as the student is not claimed as a dependent), but not both. For further IRS eligibility requirements
simply visit the official IRS website.
License: Creative Commons
License: Creative Commons
Brian C. Hill, an accomplished CPA and the founder of Professional Tax Resolution, has helped thousands of people with financial planning, accounting, and taxes. His firm specializes in IRS tax relief and helping people that are behind on their taxes.