IRS offers tax benefit tips for college students
If you're a recent high school graduate going to college for the first time or a returning student, the Internal Revenue Service has tips about education tax benefits that can help offset some college costs.
The tips typically apply to students, their spouses or a dependent for whom parents claim an exemption on their tax returns.
The benefits include:
American Opportunity Credit • This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post-secondary education at an eligible institution. Forty percent of the credit is refundable, which means that students may be able to receive up to $1,000 a person, even if they don't owe any taxes. Qualified expenses include tuition and fees, course-related books, supplies and equipment.
Lifetime Learning Credit • In 2012, students may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for students enrolled in eligible education institutions. There is no limit on the number of years eligible students can claim the Lifetime Learning Credit.
The IRS notes, though, that only one type of education credit per student can be claimed in the same year. However, if someone pays college expenses for more than one student in the same year, they can choose to take credits on a per-student, per-year basis. For example, a parent who is claiming two students as dependants on a tax form can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other.
Student loan interest deduction • Generally, personal interest other than mortgage loan interest is not deductible. However, a student may be able to deduct interest paid on a qualified student loan during the year. The deduction can reduce the amount of their income subject to tax by up to $2,500, even if they don't itemize deductions.
For more information
Visit the Tax Benefits for Education Information Center at http://www.irs.gov or check out Publication 970, Tax Benefits for Education, which can be downloaded from the IRS' website or ordered by calling 800-829-3676.