About Tax Credits

tax credit notes

For eligible participants, there are two tax credit that can be taken for qualified education expenses. Consider these credits as grants that can reduce your total educational expense.

Likewise, interest paid on student loans may be taken as deductions to reduce your tax burden. The student loan interest deduction is claimed as an adjustment to income.

Please reference the IRS publications regarding these tax benefits:

IRS publication 970, tax benefits for education

Use this tally sheet to keep tabs on your financial aid needs.

American Opportunity Credit

tax credit notes

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  • provides for a maximum $2500 per year per eligible student
  • it is available only for the first four years of post secondary education
  • the student must be enrolled at least 1/2 of the full-time workload in a program that leads to a degree, certificate or other educational credential.
  • view IRS topic for more information

Lifetime Learning Credit

government grant notes

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  • provides for a maximum $2000 per year per family
  • it is available for any year of post secondary education including graduate work and for courses to acquire or improve job skills
  • student does not need to be pursuing a degree or other recognized education credential
  • view IRS topic for more information

Tax Deduction for Student Loan Interest

government grant notes

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If your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education.

For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040).

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

IRS publication 970 for more information

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