IRS Publication 970
Candlefocus EditorThe tax credits and benefits found in Publication 970 apply primarily to higher education, such as college and university studies, although some of the benefits can also be used to cover the costs of certain conservatories and post-graduate programs. They are designed to help make college more accessible and to reduce the burden of high tuition fees.
The most beneficial credits and benefits available under the guidelines outlined in Publication 970 include the American Opportunity Tax Credit, the Lifetime Learning Credit, student loan interest deductions, and the IRA deduction for post-secondary education costs. To qualify for a tax credit or deduction, student beneficiaries typically must be pursuing a degree or certificate with a “recognized educational institution,” as defined by the IRS.
The American Opportunity Tax Credit is available to individuals, regardless of age and income level, who are taking college-level courses at least half-time. The credit is worth up to $2,500 and is claimed as a standard deduction. It may be available for up to four years of qualified study. The Lifetime Learning Credit is applicable for those pursuing educational or professional goals on a part-time basis. It provides a credit of up to $1,000 and may be claimed for five or more years of education.
Items of qualifying student loan interest for deductions are limited to PLUS or private loans. This provision allows borrowers to subtract the loan interest from their adjusted gross income. Loan repayment is only partially based on this income-based deduction and the deduction is completely phased out once the borrower’s income passes certain thresholds.
The IRA Deduction for Post-Secondary Education Costs is designed to help parents and other family members save for college expenses early, providing a tax benefit in the process. Contributions to a custodial Coverdell Education Savings Account, 529 education savings plan, or an eligible Individual Retirement Account (IRA) may be withdrawn tax-free to pay for qualifying educational expenses.
Overall, the tax credits and deductions outlined in IRS Publication 970 can help reduce the overall cost of college and post-secondary education, making it easier for both students and their families to access higher education. It pays to explore the different credits and deductions to maximize the potential for tax savings.