CPA & Business Advisory Blog

Can and should you take advantage of the deduction for qualified higher education expenses?

Several tax breaks are on the books for 2011 but may be gone next year unless they are extended by Congress. One of them is the above the line deduction for qualified higher education expenses.

  • What it is: 
    American Opportunity Credit – taxpayers have the option of either deducting higher education expenses or taking a credit for them of up to $2,500 per student.  This credit is partially refundable (40%). 
    Lifetime Learning Credit – taxpayers have the option of either deducting higher education expenses or taking a credit for them of up to $2,000 per tax return and is non-refundable. 

    After 2011, taxpayers will no longer be able to deduct higher education expenses and will only be eligible for the credit if they meet the following adjusted gross income limitations.

  • Who it applies to: 
    American Opportunity Credit – Available to students in their first 4 years of qualified higher education expenses.  The adjusted gross income phase out on the credit is between $80,000 – $90,000 for single filers and $160,000 – $180,000 for married filing jointly.
    Lifetime Learning Credit – Available to any postsecondary education and courses to acquire or improve job skills. The adjusted gross income phase out on the credit is between $50,000-$60,000 for single filers and $100,000 – $120,000 for married filing jointly.
  • Benefit: The benefit of taking the deduction is that is lowers the taxpayer’s adjusted gross income when the taxpayer is not eligible for the education credit due to adjusted gross income limitations.  The deduction may also allow the taxpayer to take advantage of other credits that are limited by adjusted gross income.
  • What you can do if this applies to you:  Consider prepaying eligible expenses if doing so will increase your deduction. 

If you feel this situation applies to you, post a comment below or contact our Tax Planning & Preparation Group to review your individual tax position.

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