Making the Most of College Tax Breaks

Some parents spend years saving for their children’s college education, while others scramble to search out scholarships and loans at the last minute. No matter which approach you’ve taken, there are a number of tax breaks available for qualifying taxpayers paying education bills. Don’t miss out on this opportunity to offset your education costs.

Tax credits are a valuable tax break because they reduce the amount of tax you owe. That generally has a bigger impact than a tax deduction, which simply lowers the amount of your taxable income.

To qualify for an education tax credit, you must be a taxpayer who has paid taxes in the most recent year.

To understand how it works, assume that a family had one dependent who was in the first year of college, and that they owed $5,000 in taxes for the year. If they qualify for the highest credit amount, they would be able to reduce their taxes owed by $2,500 to $2,500.

The American Opportunity Credit can be claimed for four post-secondary education years and required course material costs are included as qualified expenses.

This credit of a maximum of $2,500 per student is available to individuals with income of $80,000 or less or $160,000 for married couples who file a joint return. The credit begins to phase out for single taxpayers who have adjusted gross income between $80,000 and $90,000 and for joint tax filers when adjusted gross income is between $160,000 and $180,000.

The Lifetime Learning Credit is another popular tax break. It's possible to qualify for the Lifetime Learning Credit while taking one or more courses to improve or gain new job skills. The Lifetime Credit can amount to as much as 20% of the first $10,000 of qualified educational expenses. So, those who qualify can receive as much as $2,000 per year for the total qualified expenses paid for yourself, your spouse or your dependents.

The Lifetime Learning Credit (LLC) applies for any number of years of postsecondary education or for courses taken to enhance job skills, while the American Opportunity Credit is only available for the first four years of postsecondary education. For 2016, the LLC phases out between $55,000 and $65,000 of modified adjusted gross income for single taxpayers. The range for joint filers is between $110,000 and $131,000 of MAGI.

Taxpayers with incomes too high to benefit from the American Opportunity Credit or Lifetime Learning Credits may be able to take advantage of the tuition and fees deduction. You may qualify for the maximum deduction of $4,000 if your modified adjusted gross income (MAGI) is not more than $65,000 for single filers and $130,000 for married taxpayers filing jointly. If you're a single filer and your MAGI is more than $65,000 but not more than $80,000, your deduction is limited to $2,000. The $2,000 deduction also applies to joint filers whose MAGI is higher than $130,000, but not more than $160,000.

No tuition and fees deduction is allowed if your MAGI exceeds $80,000 for single filers and $160,000 for joint filers. The deduction is limited to tuition and fees only, other educational expenses are not eligible.  It's one of the income adjustments, also commonly called above-the-line deductions, found directly on the first page of tax return Form 1040 and Form 1040A.


To get more information on education-related tax breaks, visit the Internal Revenue Service website at In addition, your local CPA can help you make the most of the options available to you. Consult him or her about all your family’s financial needs.

(Updated and reviewed 2017)