Education Tax Incentives

April 3, 2013 Tax Blog

Education Tax Incentives

With the enactment of the American Taxpayer Relief Act on January 2, 2013, two college tax benefits were extended thru 2017 and the tuition and fees deduction through 2013.  The 3rd college tax benefit, the lifetime learning credit, is already a permanent part of the tax code and did not nor does not require extending.

Only one of the tax benefits can be claimed per year per qualifying expenses per eligible student.

The American opportunity credit yields the maximum annual of $2,500 per eligible student.   In order to receive the maximum credit, an eligible student must pay $4,000 or more in qualified expenses.  The amount of the credit is also phased out depending on the modified adjusted income of the taxpayer.  A $1,000 is refundable even if the taxpayer does not owe tax, unlike other college tax benefits.

With the lifetime learning credit, $2,000 credit is available per return.  It however is not based on per eligible student as the American opportunity credit is, but on each tax return.  Also, unlike the American opportunity credit it is only available for graduate or post secondary education, or for skill and job improvements.  A taxpayer must pay $10,000 or more in qualified expenses to receive the maximum credit, and have sufficient tax liability to receive it.  There are phase outs on modified adjusted gross income for this credit.  This credit does not require a student have to be enrolled at least half time to receive the lifetime learning credit.

The tuition and fees deduction is an above-the-line deduction for qualified higher education expenses.  This means it is a deduction taken to reduce your modified adjusted gross income.  The deduction, like the lifetime learning credit, is phased out based on your adjusted gross income before the deduction.  The maximum deduction is $4,000.

For more information visit our website at www.dncpas.com or give one of our friendly tax accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.