Tax guide

For Students and New Grads

If you’re a college student (or the parent of one), you should know about some key tax breaks that are available to you when you do your taxes.

Education Tax Credits

There are two tax credits for higher education. They’re targeted at different types of students, so it pays to know the differences.

  • The American Opportunity Credit is good for four years of undergraduate higher education, and it will pay up to $2,500 for qualifying expenses for each qualifying student. Up to $1,000 of that is refundable.
  • The Lifetime Learning Credit is worth up to $2,000 per year, but is nonrefundable. And that's per tax return, not per student. This credit can be used for undergraduate expenses, graduate school, even professional or vocational courses. Plus, there’s no limit to how many years you can claim it.

Education Deductions

The two deductions below are not available if you are married and filing separately, or if someone else – such as a parent – claims you as a dependent on his or her return. Parents can still claim the deductions, provided they paid the expenses.

Tuition and Fees Deduction

If you don’t qualify for one of the education credits, you may still be able to deduct your tuition and fees. The deduction can cut your taxable income by up to $4,000. It’s taken as an adjustment to income, which means you can claim this deduction even if you don’t itemize deductions.

This deduction begins to phase out when modified adjusted gross income reaches $65,000 for single taxpayers and $130,000 for married filing jointly.

Student Loan Interest Deduction

The Student Loan Interest Deduction helps cover the interest you pay on your student loans. This deduction can reduce your taxable income by up to $2,500. The deduction is an adjustment to income, so you can claim it even if you don’t itemize deductions.

The deduction is not available if you are married and filing separately, or if someone else – such as a parent – claims you as a dependent on his or her return. Parents can still claim the deduction, provided they took out the loan.

How to Claim Education Tax Breaks

For each student, you can claim either the American Opportunity Credit, or the Lifetime Learning Credit, or the tuition and fees deduction. The IRS won’t let you take more than one of these particular tax breaks for the same person on the same return.

But: Parents claiming two or more college kids as dependents on their return can claim one of these tax breaks for one student and another for a different student. 

And: You can still take the student loan interest deduction even if you’re claiming one of the other tax breaks.

When you’re doing your taxes with 1040.com, you can apply for either education credit on our Education screen. As for student loan interest, report it on our Student Loan Adjustment screen. Our tax return interview will help you fill out the right screens.

Also see:
Tuition Deduction vs. Education Credits
How to Deduct Student Loan Interest

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