It’s no surprise that not many people look forward to preparing their tax return. But If you’re an undergraduate or grad student, a professional taking degree courses, or a parent who is helping your child with tuition, you may be eligible for higher education tax credits and deductions (also called student loan tax credits and deductions).
Student loan tax credits and benefits
Tax credits reduce the amount of taxes you owe, while tax deductions reduce the amount of income on which you are taxed. Here are the main education tax credits and benefits available for familiesfootnote 1:
- The American Opportunity Tax Credit (AOTC): If you’re a student enrolled at least half-time in a program leading to a degree or other recognized educational credential, you may be eligible for a credit of up to $2,500 per year. This tax credit is for tuition, enrollment fees, and course material expenses during your first four years of higher education.
- The Lifetime Learning Credit (LLC): This credit covers up to $2,000 per year in expenses related to all years of post-secondary education, as well as non-degree courses to acquire or improve job skills. There is no limit on the number of years it may be claimed.
- Student Loan Interest Deduction: If you have federal or private student loans, you may be eligible to deduct up to $2,500 of interest as an adjustment to your taxable income. The student must be enrolled at least half-time in a program leading to a degree or other recognized educational credential.
- Tuition waivers for graduate students: Grad students with qualified tuition reductions do not have to report the value of the reduction as taxable income. Tuition waivers may be taxable above a certain limit and not all employment types qualify, so consult with your school to see if your waiver is reportable as income.
NOTE: You can claim either the American Opportunity Tax Credit or the Lifetime Learning Credit in one tax year, but not both.
According to the IRS, these expenses do NOT qualify for AOTC or LLC:
- Room and board
- Medical expenses (including student health fees)
- Similar personal, living or family expenses
Questions to ask before filing
Before you dive into the nitty-gritty of tax prep, there are a few questions to answer first:
- Is your student loan eligible? Not all student loans are eligible for all higher education tax deductions, so you’ll need to determine if your loan qualifies. The Internal Revenue Service provides the eligible loan criteria for claiming a tax deduction on their website, but you may also want to consult with a tax professional to find out more about what tax benefit/credits are available to you.
- Who can claim the tax credit or deduction? Determining who claims a tax credit or benefit is a family decision.
- Student: If you, your spouse, or a dependent you list on your tax return is the student, a tax credit can be claimed.
- Legally obligated to pay interest: A tax deduction can be claimed if you’re legally obligated to pay interest on the loan and if you (or your spouse, if filing jointly), can’t be claimed as a dependent on someone else’s return.
- There are different criteria for tax credits and tax deductions, so make sure you check the IRS website or consult with a tax professional if you have questions.
Eligible or not? It depends on your MAGI.
Whether or not you’re eligible to claim any of these tax credit programs depends on your modified adjusted gross income (MAGI). You can figure out your MAGI based on your federal tax formfootnote 2.
- The limit on your MAGI for either the AOC or the LLC are $90,000 if single; $180,000 if married filing jointly.
- For the Tuition and Fees Deduction, a single filer with a MAGI less than $80,000 and joint filers with a MAGI less than $160,000 may qualify for this deduction.
What forms do you need?
You’ll likely need Form 1098-E for your taxes:
- Only borrowers get this form; cosigners receive a tax information letter instead of the form.
- This form includes eligible interest payments received by December 31.
- Servicers are required to issue a Form 1098-E if the interest the borrower received in the tax year was $600 or more. For less than $600, go to your servicer’s website to check on the exact amount.
Resources for student loan-related tax questions
Use these resources for more information on this topic:
- The Federal Student Aid website has information on tax credits especially for federal student loans.
- For the final word on information on higher education tax deductions and credits, go to the source: the IRS publication, Tax Benefits for Education. There’s also a Student Loan Interest Deduction Worksheet in your 1040 or 1040A instructions.
- Talk to your own tax advisor for guidance on your specific tax/education loan situation.
- Contact your student loan servicer or lender if you need a Form 1098-E. If you need to contact the IRS, visit IRS.gov or call 800-829-1040.
Don’t miss out on claiming your credits!
Preparing your taxes can be tedious, but the effort may be worth it if you can take advantage of tax credits and benefits for your college expenses. Just remember that there are criteria around which loans are eligible for deductions and who (student, parent, or third-party) can claim a tax credit or deduction, so make sure to do your homework—or consult a tax professional for advice—before you file.