Most all college students are back on campus by this point but the benefits that you can receive from various tax credits will not become apparent until you pay your taxes next year. It’s important to know what tax credits you may be eligible for early on, so that you keep good records as you pay these college expenses. Recently the IRS published their Summertime Tax Tip 2012 – 25 which details tips for students and parents paying college expenses. The actual text of this tip is listed below.
Whether you’re a recent high school graduate going to college for the first time or a returning student, it will soon be time to head to campus, and payment deadlines for tuition and other fees are not far behind.
The IRS over some tips about education tax benefits that can help offset some college costs for students and parents. Typically, these benefits apply to you, your spouse or dependent for whom you claim an exemption on your tax return.
- 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 $2500 per eligible student and is available for the first four years of postsecondary education at an eligible institution. 40% of this credit is refundable, which means that you may be able to receive up to $1000, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
- Lifetime learning credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for eligible student.
You can claim only one type of education credit per student in the same text year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.
- Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2500, even if you don’t itemize deductions.
These education benefits are subject to income limitations, and may be reduced or eliminated depending upon your income. For more information, visit the Tax Benefits for Education Information Center at IRS.gov or check out Publication 970, Tax Benefits for Education.