IRS Tax Breaks for Educational Expenses

​Those with significant college expenses can take advantage of IRS income tax breaks. The American Opportunity Tax Credit (AOC) is a common option, restricted to the first four years of undergraduate education (whether this involves oneself, one’s spouse, or one's offspring). This makes professional and graduate courses ineligible.

The AOC provides credit extending to a maximum of $2,500. This represents 100 percent of initial qualifying expenses up to $2,000, with the remaining $500 representing 25 percent of the next tranche of qualified expenses up to $2,000. Qualifying expenses include tuition, mandatory school fees, and the costs of textbooks and other learning materials. Transportation, personal living expenses, and medical outlays while attending college do not apply. AOC stipulates that the person must attend a qualifying college on at least a half-time basis. With more than one dependent potentially qualifying, the full tax deduction is limited to those with a Modified Adjusted Gross Income (MAGI) of under $80,000.

Those seeking a tax break for educational expenses outside AOC eligibility, such as when gaining job skills or pursuing a hobby, may still qualify for the Lifetime Learning Tax Credit (LLC). This covers a maximum of $2,000 in expenses and is calculated as 20 percent of that year’s initial $10,000 tuition and associated costs. The same $80,000 MAGI rule applies. As AOC and LLC credits may not be claimed for the same student in the same year, one must select one or the other if the student qualifies for both.

Gary Begnaud

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