Can I deduct tuition and fees on my federal income tax return?
Yes. There are three overlapping education tax benefits based on qualified higher education expenses, such as tuition and fees (and in some cases also course materials such as textbooks). These are the American Opportunity Tax Credit, the Lifetime Learning Tax Credit and the Tuition & Fees Deduction.
The American Opportunity Tax Credit provides a federal income tax credit of up to $2,500 per student, based on the first $4,000 in qualified expenses for tuition, fees and course materials. The tax credit is limited to the first four years of postsecondary education. The student must be enrolled on at least a half-time basis. The tax credit is 40% refundable (up to $1,000), but only if the taxpayer claiming the tax credit cannot be claimed as an exemption on someone else’s federal income tax return.
The Lifetime Learning Tax Credit provides a federal income tax credit of up to $2,000 per tax return, based on the first $10,000 in qualified expenses for tuition and required fees. The tax credit is available for an unlimited number of years. The student does not need to be a candidate for a degree or certificate. The Lifetime Learning Tax Credit is popular among graduate and professional students and continuing education students who are not eligible for the American Opportunity Tax Credit.
The Tuition & Fees Deduction provides an above-the-line exclusion from income of up to $4,000 per tax return, based on qualified expenses for tuition and required fees and, in required by and paid to the school, textbooks, supplies and equipment. The exclusion from income yields a direct financial benefit of less than $1,000 for most taxpayers, but may provide an indirect benefit by reducing adjusted gross income (AGI).
The American Opportunity Tax Credit has the highest income phaseouts and yields the greatest direct financial benefit, so it is the best option for most taxpayers who qualify.
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