Learning-related Tax Breaks for the Lifetime Learner

By: TSPadmin

Among Americans, education is a valued aspect of society, a must for personal enlightenment and professional advancement as well as societal progress. The government also uses education to provide tax breaks including the following credits, which your tax consultant at H&R Block cane explain in more detail.  

American Opportunity Credit

The American Opportunity Credit is available to individuals with modified adjusted gross annual income (MAGI) of $80,000 or less (single filers) or $160,000 or less (married couples with joint filing). The credit isn’t available for single filers with $90,000 and above MAGI as well as for married couples with $180,000 and above MAGI.

If you qualify, you will get a tax credit of up to $2,500 for college tuition and related expenses during the year; room and board, however, is not covered. You will also love these features:

  • It has bigger tax breaks and higher income limits than the Hope Credit.
  • It covers a 4-year course in college.
  • It can result in a tax refund particularly when the tax credit exceeds your tax liability, with up to 40 percent of it being refundable. Let’s suppose that you qualified for the full credit and you have a $1,900 federal tax bill. Your tax bill will be reduced to $400 due to the non-refundable portion while the first $400 of its refundable portion will result in a zero tax bill. You will then receive a $600 refund.

Lifetime Learning Credit

You can use the Lifetime Learning Credit at virtually any school. You have the opportunity to get back as much as $2,000 per year, the maximum limit for 20% of $10,000 of qualified expenses. You must take note of certain provisions including:

  • Income limits of $65,000 for single filers and $130,000 for married individuals
  • No claiming of both the Lifetime Learning Credit and the American Opportunity Credit in the same year for the same student
  • No double-dipping allowed (i.e., expenses paid via tax-favored tuition programs will not be counted in calculating the credits)  

If neither of these two tax credits work in your case, you shouldn’t despair. You can still find several tax treatments for education including the following:  

  • Up to $2,500 in deductions for interest paid on student loans each year for as long as your MAGI is less than $80,000 (single return) or $160,000 (joint return). You can claim it even when your parents footed the bill.
  • Interest on savings bonds, specifically Series EE and I bonds, are tax-free when it was used for qualified education expenses; terms and conditions apply. 

Ask your tax advisor about these tax credits today and you will have one less thing to worry about.  

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