What are Some Tax Deductions Available for Students?
Nashua, NH Student Looks for Student Tax Breaks
The IRS offers several tax breaks for college students, as well as graduates who are paying off student loans. The American Opportunity Tax Credit (AOTC) is available for those enrolled in their first four years of college courses. Taxpayers paying for college, either the student themselves, a parent, or spouse, can claim a tax credit of 100% on the first $2,000 spent on eligible education expenses. The Lifetime Learning Credit is another advantage for current students. This differs from the AOTC in that graduate students can be eligible, and you are not required to be enrolled for at least half of the year. Those that have student loans, whether current or former students, can deduct the interest paid on the student loans from their taxes.
A Nashua resident had recently enrolled in college. Curious if there would be any tax breaks that he could take advantage of, he contacted the team at Merrimack Tax Associates.
Education Tax Credits Available for Students
The American Opportunity Tax Credit (AOTC) offers 100% tax deduction on the first $2,000 spent toward eligible education expenses and 25% of the next $2,000. This can mean a total tax credit of $2,500. To be eligible for this tax break you must be enrolled in your first four years of college, be enrolled in college courses at least half of the tax year, and not be claimed as a dependent on another tax return. Eligible expenses include tuition and fees, required books, supplies and other equipment.
The Lifetime Learning Credit is worth a total of $2,000. The biggest difference between this and the AOTC is that graduate students are eligible and there is no minimum amount of time that you must be enrolled during the calendar year. To qualify for this credit, joint filers must have an adjusted gross income below $160,000 jointly or $80,000 for single filers. The credit is gradually reduced for joint filers between $160,000 and $180,000 and $80,000 and $90,000 for single filing status.
Student Loan Tax Breaks
Current students and graduates with outstanding student loans can deduct up to $2,500 of interest paid on the loan for the calendar year. This deduction is available for those filing jointly with an income below $145,000 and gradually reduces up to $175,000. Single filers can take advantage of this if their income is below $70,000, with the deduction decreasing up to $85,000 in income.
The Nashua resident was pleased to hear that there would be some tax deductions available as he pursues his education.