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IRS Outlines High Education Tax Relief

by Mike Godfrey, Tax-News.com, Washington

03 October 2017


The Internal Revenue Service has drawn taxpayers' attention to the various tax breaks available for US students undertaking higher education.

Two college tax credits apply to students enrolled in an eligible college, university, or vocational school. Eligible students include the taxpayer, their spouse, and dependents.

The American Opportunity Tax Credit (AOTC) can be worth a maximum annual benefit of USD2,500 per eligible student. The credit is only available for the first four years at an eligible college or vocational school for students pursuing a degree or another recognized education credential. Taxpayers can claim the AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.

Meanwhile, the Lifetime Learning Credit (LLC) can have a maximum benefit of up to USD2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.

The IRS has said that taxpayers wishing to claim the AOTC or LLC should use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if claiming the AOTC, the law requires taxpayers to include the school's Employer Identification Number on this form.

There are other education-related tax benefits that may help parents and students, the IRS said. These are:

  • The student loan interest deduction of up to USD2,500 per year;
  • Tax-free scholarship and fellowship grants (if used to pay for tuition, required enrollment fees, books, and other course materials, although these are taxable if used for room, board, research, travel or other expenses);
  • No tax on the interest for savings bonds purchased after 1989 by a taxpayer over the age of 24, if used to pay for college; and
  • No federal tax on earnings from qualified tuition programs (529 plans) when used to pay for qualified education expenses (although contributions are not deductible).

The IRS said taxpayers should keep a copy of their tax return for at least three years. Copies of tax returns may be needed for many reasons. If applying for college financial aid, a tax transcript, which summarizes return information and includes adjusted gross income, may be all that is needed, it said. It added that the quickest way to get a copy of a tax transcript is to use the Get Transcript application. After verifying their identity, taxpayers can view and print their transcript immediately online. The online application includes a robust identity verification process. Those who can't pass the verification must request the transcript be mailed. This takes 5 to 10 days.

TAGS: tax | interest | fees | tax credits | education | United States | tax breaks | Other | Tax

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