Tax Benefits and Considerations

Tax Credits and Tax Deductions

There are a variety of different tax benefits to take advantage of (tax credits and deductions). Usually you will get to only claim one of the credits or deductions in each tax year for each student in college. Lets take a look at the most important tax benefits to choose from.

  1. American Opportunity Credit
  2. Tuition and Fees Deduction
  3. Student Loan Interest Deduction
  4. The Lifetime Learning Credit

American Opportunity Tax Credit

The American Opportunity Tax Credit is valued at up to $2,500. It is good in any of the student’s first four years of college. In order to claim the full $2,500 credit, you need at least $4,000 worth of qualifying higher education expenses. With the AOC you can even receive a check back from the government if your total tax bill is less than your AOC credit. The maximum check you can get back is $1,000 in any year.

Most people will find the AOC is the most valuable of the four different tax benefits you can choose from. A more complete explanation of the requirements and qualifications can be found at

Tuition and Fees Deduction

If you cannot take the AOC you can choose to take the above the line tax deduction for tuition and fees up to $4,000. This is not as nice as the AOC since it is only a deduction.Let’s say you are in the 25% tax bracket. Your actual savings is then 25% of the deduction amount so if you get a $4,000 tax deduction, you are actually $1,000 richer in real money when all is said and done.

You cannot take both the AOC and the tuition tax deduction for the same student in the same tax year. You can choose either the AOC or the normal deduction up to $4k. But you cannot take both.

Student Loan Interest Deduction

For those of you who are now in the pay-back phase of your student loan, you get a little break too. The interest portion of your payments on your stud loan paid during the year is tax deductible. Unless, of course, once again, your income is too high. Again, the income levels are $80k for singles and $160k for marrieds. If you are above those, the deduction begins to phase out.

One other good point about both the tax deduction for tuition and fees and the tax deduction for student loan interest paid is that they are both above the line deductions. This means you get to deduct them whether or not you itemize your deductions on schedule A. Even if you just take the standard deduction, you still get these write offs.

Lifetime Learning Tax Credit

The maximum credit you can get on this credit is $2,000 in a year. But you can take the credit for any number of years, you are not just limited to the first four years of a college degree program. In fact the student is not even required to be pursuing a formal degree or credential. Qualified expenses on this credit include, as usual, tuition and fees. It also applies to other course materials such as books and equipment, but on this credit there is the further stipulation that those expenses must have been paid directly to the teaching institution itself. So if you bought the book from the off-campus private bookstore, you’re out of luck for the cost of that book.