It’s January, which means many of you will start working on your 2013 taxes soon. I’m sure most of you are aware of the various tax deductions and credits that are available for business-related expenses, donations, child care, and medical bills, but did you know that your student loans may also give you certain tax advantages?
Whether you are a current college student, the parent of a college student, or someone who is still in repayment, there are various student loan tax deductions and credits that could help reduce your tax liability or even score you a nice refund. Here’s a brief overview of what education tax credits may be available to you, including continuing education tax credits.
Education Tax Credits
Educational credits help you reduce the amount of tax you may be required to pay. And in some cases, a portion of the credit may actually be refundable, which means you could be getting a bigger tax refund this year.
Benefits: May be able to claim a tax credit of up to $2,500 per eligible student. Up to 40% of the credit is refundable.
Income Limits: Single filers up to $90,000 and married (joint)/head of household filers up to $180,000 AGI.
Covered Expenses: Tuition, fees, and course materials during the first four years of an undergraduate degree. You may take the credit for yourself, your spouse, or eligible dependent. Part-time enrollment for at least one academic term/semester is required.
Benefits: May be able to claim a tax credit of up to $2,000 per return (non-refundable).
Income Limits: Single filers up to $63,000 and married (joint)/head of household filers up to $127,000 AGI.
Covered Expenses: Tuition, fees, and course materials for a postsecondary degree or employment-related courses. There is no limit on the number of years you may take this credit for yourself, your spouse, or eligible dependent.
You cannot take both educational credits at the same time, so be sure to review the eligibility guidelines and crunch the numbers before deciding which may be best for you. In addition, you’ll be required to submit an IRS Form 8863 with your return, if you take either credit.
Education Tax Deductions
If you don’t qualify for one of the educational credits, you may be able to take one of these tax deductions, which will adjust your income and help reduce your tax liability. You may take these deductions even if you do not itemize.
Benefits: May reduce your income subject to tax by up to $4,000.
Income Limits: Single filers up to $80,000 and married (joint)/head of household filers up to $160,000 AGI.
Covered Expenses: Tuition and fees at an eligible postsecondary institution for yourself, spouse, or dependent for whom you claim an exemption. This includes expenses paid with the proceeds of a federal or private student loan.
Benefits: May reduce your income subject to tax by up to $2,500.
Income Limits: Single filers up to $75,000 and married (joint)/head of household filers up to $155,000. The amount of the deduction will be reduced for single filers who earn more than $60,000 and married (joint)/head of household who earn more than $125,000.
Covered Expenses: Student loan (private or federal) interest paid during the year on a qualified student loan that paid for eligible educational expenses for yourself, spouse, or for anyone who was your dependent when you took out the loan.
It’s important to remember that any expenses covered by free student aid, such as grants and scholarships, cannot be included when determining your estimated credits or deductions. In addition, you cannot take both an educational credit and the tuition and fees deduction in the same year.
To learn more about educational credits and deductions, check out Publication 970 from the Internal Revenue Service (IRS) or consult a tax specialist. Remember, everyone’s situation is different and the materials provided here are for information purposes only.
You should contact your accountant or tax preparer or other expert to discuss your personal situation and to determine if you can benefit from any of the credits mentioned here.