In order to be able to quality for the education credits, three things need to happen. First, you, your dependent or a third party pays qualified education expenses for higher education. Second, the student needs to be enrolled at a eligible educational institution. Third, the eligible student must be you, your spouse or a dependent on your tax return.
American Opportunity Tax Credit - In order to take this credit, the student must be enrolled at least half time at least one semester in a program leading to a degree, certificate or another recognized educational endeavor. The student must not have a 4 year degree already, so Masters and higher degrees are ineligible. You can receive 100% of the 1st 2,000 of the expenses and 25% of the next $2,000 of the expenses for a total of $2,500. Only 40% of the credit is refundable, which means if you owe no tax you only receive a maximum of 40% of the credit. The qualified expenses must be tuition and other expenses of a qualified educational institution that are required for enrollment.
Lifetime Learning Credit - This credit is a little easier to receive. You cannot receive both credits. It is either one or the other. You do not have to be enrolled in any type of program. You only receive 20% of the first $10,000.00. This credit is not refundable, in other words if you don't owe any tax, you don't receive the credit. The does not have to be an educational institution. It can simply be for improving job skills.
Tuition and Fees Deduction - This deduction is a little different. You must not have received either of the two credits above. This is a deduction which reduces your taxable income. A tax credit reduces the amount of tax you owe. Tax credit is much better. You can receive up to $4,000 that you spent in the tax year as a deduction. The student must be enrolled in a qualified program of an eligible institution.
Student Loan Interest - This is an after college benefit. It allows you to reduce your taxable income by the amount of student loan interest that you paid during the tax year. It must be a qualified student loan that you are legally obligated to pay. You cannot take this an file Married Filing Separately.
Lifetime Learning Credit - This credit is a little easier to receive. You cannot receive both credits. It is either one or the other. You do not have to be enrolled in any type of program. You only receive 20% of the first $10,000.00. This credit is not refundable, in other words if you don't owe any tax, you don't receive the credit. The does not have to be an educational institution. It can simply be for improving job skills.
Tuition and Fees Deduction - This deduction is a little different. You must not have received either of the two credits above. This is a deduction which reduces your taxable income. A tax credit reduces the amount of tax you owe. Tax credit is much better. You can receive up to $4,000 that you spent in the tax year as a deduction. The student must be enrolled in a qualified program of an eligible institution.
Student Loan Interest - This is an after college benefit. It allows you to reduce your taxable income by the amount of student loan interest that you paid during the tax year. It must be a qualified student loan that you are legally obligated to pay. You cannot take this an file Married Filing Separately.
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