Can you deduct your child’s tuition from taxes?


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Are you a parent who looks at rising tuition costs in a mild form of agony? Are you committed to both helping your kids get through college and minimizing higher education costs as much as possible?

One clever way parents may be able to lower overall education costs is by using tuition tax breaks. Even if the money comes out of your pocket at first, you may be able to recoup some of those dollars come tax time. There are currently two tuition tax credits for parents to consider; the programs are called the American Opportunity Tax Credit and the Lifetime Learning Credit.

With each of these programs, the parent would need to claim their student as a dependent on their taxes, as well as meet some pretty specific rules for each program. To get started, it’s smart to understand the rules and requirements of each and know that not every filer is going to qualify for these programs.

For parents wanting to take a deep dive into the particulars of tax programs, talking to a licensed tax professional about tax credits and deductions is critical.

This article is for informational purposes only, offering a high-level overview of the available tuition-related tax credits and deductions for the 2018 tax year, including a look at the requirements for qualification and the current value of each of the different tax breaks, credits and deductions. Definitely chat with your accountant or other tax professional if you’re considering any IRS-related stuff.

Related: How to file for a tax extension

What’s the Difference Between a Tax Deduction and Tax Credit?

deduction is a way to potentially reduce an overall tax bill by reducing how much a person has earned in a given year in the eyes of the IRS. This is called reducing taxable income. For example, and very broadly, a person that made $80,000 in gross income in a given year that has $15,000 in deductions would have $65,000 in taxable income.

When compared dollar for dollar, tax credits can sometimes be more valuable than a similar tax deduction. A nonrefundable tax credit only qualifies a taxpayer for a reduction up to the amount that they owe. With a refundable credit, a taxpayer could receive a refund even if they do not owe any tax.A tax credit, on the other hand, can help provide a dollar-for-dollar reduction in income taxes owed. For example, a $2,000 tax credit would reduce a person’s tax bill by $2,000.

The American Opportunity Tax Credit

Parents with a child or children they claim as dependents who are in the first four years of their undergraduate education may qualify for the American Opportunity Tax Credit (AOTC).

The AOTC is a credit for tuition and other qualified educational expenses paid for during an eligible student’s initial four years of their college education. That’s right — the AOTC doesn’t apply to students in their fifth year and beyond.

The AOTC is worth up to $2,500 per eligible student. Because it is a tax credit, it should directly reduce the filer’s tax bill—not their taxable income. As of this writing, if the credit happens to bring the filer’s tax bill to zero, they may qualify to have 40% of any remaining amount of the credit (up to $1,000) refunded to them.

To qualify for the AOTC, there are additional requirements for both the parent and the student. According to the IRS, first, for the student to be eligible for the AOTC, they must be “pursuing a degree or other recognized educational credential, be enrolled at least half time for at least one academic period beginning in the tax year, have not claimed the AOTC for more than four tax years, and do not have a felony drug conviction at the end of the tax year.” Again, the AOTC only applies to undergrad students in their first four years.

To qualify as a parent for the 2018 tax year, your modified adjusted gross income must be $80,000 or less ($160,000 or less if married filing jointly) in order to claim the full credit. If your modified adjusted gross income is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly), you would be eligible for a reduced credit.

Lifetime Learning Credit

The American Opportunity Tax Credit and the Lifetime Learning Credit (LLC) is another possibility for parents paying for school for a child they claim as a dependent.

Like the AOTC, the LLC is a tax credit. The LLC is more expansive in what types of coursework qualify for the credit than the AOTC. But due to a lower modified adjusted gross income limit, it seems to be somewhat harder to qualify for.

(Parents cannot file for both the LLC and the AOTC for the same student in the same tax year, so it is a choice between one or the other.

Also, a student cannot file for either of these if their parents have already filed for a credit for the same expenses.) The LLC credit can be applied to qualified tuition and expenses for eligible students enrolled in an eligible educational institution.

This includes undergraduate, graduate, and professional schools—including courses to acquire job skills. Said another way, if a dependent child takes a stand-alone class at an eligible local community college, it could qualify.

Compare this to the AOTC, where the students must be actively “pursuing a degree or other recognized educational credential.” There is no limit on the number of years where a person can claim the LLC, compared to the AOTC’s four years per student.

Similar to the AOTC, there is an income limitation to who qualifies for the LLC credit. To claim the full credit, a parent’s modified adjusted gross income in 2018 must be below $56,000 (or $112,000 if married filing jointly). If your modified adjusted gross income is between $57,000 and $67,000 ($114,000 and $134,000 if married filing jointly), you could be eligible for a reduced credit.

Other Education-Related Deductions

Parents who have taken out loans for their child’s education may also qualify to deduct the interest payments on those loans. According to the IRS, the filer’s modified adjusted gross income must be less than $80,000 or $160,000 if married filing a joint return. The deduction includes both required and voluntary interest payments.

Filers may be able to deduct up to $2,500 in student loan interest expenses. You do not need to itemize your taxes in order to qualify for the deduction.

Good luck to all of the parents helping their kids with school and filing taxes! For more information or for questions on tuition tax credits and tuition tax deferrals, consult a licensed tax professional.

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