If you, your spouse, or one of your dependents are spending time in a college classroom this year, you’re eligible for education tax credits that give you back some of the money you’re spending. The IRS sent out a bulletin this week outlining how people can take advantage of these credits. Here’s what you need to know.
- The American Opportunity Tax Credit — With this credit you can deduct up to $2,500 each year, and it applies for the first four years of higher education. 40% is refundable, meaning that even if you don’t owe any taxes you could get up to $1,000 as a refund.
- The Lifetime Learning Credit — This credit allows you to claim up to $2,000 on your federal return, and there’s no limit on number of years you can claim it.
- Just one claim per type per year — If more than one student qualifies for credits in the same year, you could apply the AOTC to one and the LLC to the other.
- Only certain expenses qualify — Certain expenses qualify, such as tuition and fees, but others don’t, such as room & board and medical expenses.
- Your school must be eligible — In order to receive the credits, your school must offer education beyond high school and be accredited (virtually all accredited public, nonprofit, and privately-owned–for-profit post secondary institutions).
- Form 1098-T lists most of your qualified expenses — You should receive Form 1098-T, Tuition Statement, from your school, which reports tuition and fees. Books and other related expenses that may also qualify won’t be listed, so you’ll need to consider those as well.
- You can’t claim an education credit if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes.
- These credits aren’t for high-income taxpayers — The credits are subject to income limitations and are reduced as income levels go up.
For more information, check out the Tax Benefits for Education Information Center on IRS.gov.