education tax credit income limit

" Education tax credit "

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can be said not only the kind of education but also can be said as a kind of business in the field.

What are the tax credits and deductions relating to higher education ?

There are two education tax credits--the American Opportunity credit (formerly the Hope credit) and the Lifetime Learning credit--that provide some relief to families in the midst of financing their children's college education. There is also a federal income tax deduction for certain taxpayers who pay qualified higher education expenses, as well as a deduction for certain individuals who pay student loans. As a general rule, a tax credit is a dollar-for-dollar reduction against taxes owed, and it is therefore more valuable than a tax deduction of the same dollar amount.

American Opportunity credit

The American Opportunity credit is worth a maximum $2,500 per student in tax savings for the first four years of your child's post-secondary education. The credit is calculated as 100 percent of the first $2,000 of qualified tuition and related expenses, plus 25 percent of the next $2,000 of expenses.

There are eligibility restrictions. First, the credit applies only to undergraduate students who are enrolled in college on at least a half-time basis. Second, the ability of parents to take the credit depends on their modified adjusted gross income (MAGI). In 2012, the full credit is limited to single filers with a MAGI below $80,000 and joint filers with a MAGI below $160,000. A partial credit is available for single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000.

One distinct advantage of the American Opportunity credit is that there is no limit on the number of credits that may be claimed on a single tax return in a given year (provided each person qualifies independently). For example, if Mom and Dad have triplets who are in their freshman year of college, then Mom and Dad can claim a total of $5,400 ($1,800 x 3) in credits for that year. However, the American Opportunity credit and Lifetime Learning credit are mutually exclusive; they cannot be taken in the same year.

Lifetime Learning credit

The second tax credit is called the Lifetime Learning credit This credit is worth a maximum yearly tax savings of $2,000. The credit is calculated as 20 percent of the first $10,000 of qualified tuition and related expenses

As the name implies, the Lifetime Learning credit is intended to apply to higher education courses taken throughout your lifetime, whether to acquire or improve job skills. As such, it is less restrictive on the type and level of enrollment than the American Opportunity credit. For example, the Lifetime Learning credit is available to graduate students as well as to undergraduate students. It is also available to students enrolled on less than a half-time basis. So, a single word processing course taken by a lawyer at his or her local community college will qualify for the credit.

As with the American Opportunity credit, there are restrictions on the Lifetime Learning credit. In 2012, the full credit is limited to single filers with a modified adjusted gross income (MAGI) below $52,000 ($51,000 in 2011) and joint filers with a MAGI below $104,000 ($102,000 in 2011). A partial credit is available for single filers with a MAGI between $52,000 and $62,000 ($51,000 and $61,000 in 2011) and joint filers with a MAGI between $104,000 and $124,000 ($102,000 and $122,000 in 2011). One particular disadvantage of the Lifetime Learning credit is that it is limited to a total of $2,000 per tax return per year, regardless of the number of people who qualify in a family in a given year. So, in the example with the triplets, Mom and Dad would be able to take a total credit of $2,000, not $6,000. Yet on the plus side, the Lifetime Learning credit is available for an unlimited number of years, whereas the American Opportunity credit is limited to the first two years of a child's post-secondary education.