Tuition Tax Credits
College expenses are on the rise. The College Board reports that the average cost of a college education, including room and board, has risen faster than the inflation rate in recent years, topping $20,000 for public four-year institutions and $45,000 for private colleges for the 2016-2017 academic year.*
For many Americans, this burden may be alleviated through the use of education tax credits. There are two types — the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both require that qualified education expenses be incurred by you, your spouse, or a dependent, and credits may not be combined for any one student for a single tax year.
American Opportunity Tax Credit
The AOTC provides a dollar-for-dollar tax reduction of up to $2,500 of the cost of tuition, books, and other required course material for up to four tax years. Specifically, the credit is allowed for 100% of the first $2,000 of qualifying expenses, plus 25% of the next $2,000 (for each qualifying student). Should the credit exceed the amount of tax you owe, you may be eligible for a refund of 40% of the credit or $1,000, whichever is less.
You may generally claim the full AOTC if your modified adjusted gross income (MAGI) for the tax year is under $80,000 ($160,000 if married filing jointly). However, the credit starts to phase out once MAGI exceeds those levels and is no longer available once MAGI reaches $90,000 ($180,000 if married filing jointly).
Lifetime Learning Credit
The LLC is a tax credit of up to $2,000 per tax return for tuition and fees, calculated as 20% of the first $10,000 of expenses. In contrast to rules under the AOTC, qualified expenses for the LLC do not include academic supplies, and no portion of the credit is refundable. However, the LLC is available for an unlimited number of years, and it does not require the student to be enrolled in a degree program.
You may receive the full credit if your MAGI is less than $56,000 ($112,000 if filing jointly). The amount of the LLC phases out when MAGI falls between $56,000 and $66,000 ($112,000 and $132,000 if married filing jointly) and is not available when MAGI exceeds these upper limits.
* The College Board, Tuition and Fees and Room and Board Over Time (Public school costs are based on in-state rates.)
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