Higher Education Tax Benefits
You may be able to receive tax benefits if you are saving or paying for expenses related to a higher education, either for yourself or for a family member. There are a number of tax benefits that you may be entitled to.
Educational Tax Credits
The American Opportunity Credit (Hope Credit) and the Lifetime Learning Credit apply to tuition and enrollment fee expenses. Only one of these can be applied per qualified student per year. Different rules apply to each separate tax credit. However, neither credit can be used by households with incomes of $62,000 or more or for households of combined incomes of $124,000 or more (joint returns).
Individual Retirement Accounts (IRAs)
The education IRA and traditional IRA may be applied to tuition expenses, as well as expenses related to books, supplies, and room and board. Withdrawals from an education IRA account are tax-free, with limitations.
Student Loan Interest Tax Deductions
Interest paid on student loans may be deductible. This only applies to the first 60 months of loan interest. The loans must also be used for at least half-time in a degree program.
Qualified State Tuition Programs
Under these programs, future tuition expenses are prepaid, and earnings are not taxed until they are withdrawn.
U. S. Savings Bonds
The interest earned is excludable from income. However, this only applies to specific qualified bonds.
Employer’s Educational Assistance Programs
Like savings bonds, employer benefits are excludable from income, with a $5,250 annual limit.
As some higher education benefits will not allow you to claim two educational benefits simultaneously, those taxpayers interested in taking advantage of higher education tax benefits should investigate the specific terms of the relevant benefit programs.
© 2020 NextClient.com, Inc. All rights reserved.