Education Tax Benefits

If you pay tuition, fees, and other costs for attendance  at an eligible educational institution for yourself, your  spouse, or your dependent, you may be able to take advantage  of one or more of the education tax benefits.

 
You can claim more than one education benefit in a tax  year as long as you do not use the same expenses for  more than one benefit.

 
Exception: Qualified expenses used to claim education  benefits can also be used to eliminate the 10% penalty  on premature IRA distributions.

 
You may claim only one of the following education tax  benefits for the same student per year: tuition and fees  deduction, American Opportunity Credit, or Lifetime  Learning Credit.

 

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Education Deductions.
Deductions reduce the amount of income subject to income  tax. Deductions for education expenses include:

• Tuition and fees deduction up to $4,000 from gross  income. Income limitations apply.
• The provision for deducting tuition and fees expires  for tax years after 2016.
• Student loan interest deduction up to $2,500 from  gross income. Income limitations apply.
• Business deduction on Schedule C or F. You can deduct  the cost of education related to the business or  farm activity.
• Miscellaneous itemized deduction on Schedule A,  subject to the 2% AGI limitation. You can deduct the  unreimbursed cost of education required to keep your  current job or maintain and improve skills needed for  your job. You cannot deduct the cost of education that  qualifies you for a new trade or business.

 

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Education Tax Credits
Tax credits reduce the amount of income tax you may  have to pay. Income limitations apply. The education  credits are claimed on Form 8863, Education Credits
(American Opportunity and Lifetime Learning Credits).

• American Opportunity Credit, $2,500 maximum per  student per year.
• Lifetime Learning Credit, $2,000 maximum per tax  return per year.

Note: The Hope Credit applied to 2008 and earlier years.  It was replaced by the more generous American Opportunity  Credit for the 2009 – 2017 tax years.

 
Penalty-Free IRA Distributions
If you withdraw money from your IRA before you are  age 59½, you are generally subject to a penalty of 10% of  the distribution, in addition to any tax that may be due  on the distribution.

• The 10% penalty does not apply to traditional IRA or  Roth IRA withdrawals, if you use the money to pay  qualified education expenses for yourself, spouse, or  for any child or grandchild of yourself or your spouse.
• Qualified education expenses include tuition, fees,  books, supplies, equipment, and special needs services  required for enrollment or attendance at an eligible
  educational institution. Room and board for students  enrolled at least half-time in a degree or certificate  program may also qualify.
• Reduce qualified expenses by scholarships and other  tax-free assistance the student receives, but not by  gifts or inheritances.

 

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