Tax Talk 2016 FAQ

Educational Expenses

I’m working my way through college, and I’ve taken a few classes at the local community college. Do I qualify for any tax breaks?
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 is phased out for higher incomes.

The credit is 40% refundable (which means you get it even if you owe no tax). But there is an exception for certain students.  The credit is not refundable to a child who:

  1. At the end of 2016, was either:
    1. Under age 18
    2. Age 18 and his earned income was less than half of his support
    3. Age 19-23, a full time student and his earned income was less than half his support
  2. Had at least one living parent at the end of 2016
  3. Does not file a joint return for 2016

My husband is in graduate school. How do we use the Lifetime Learning Credit?
The less restrictive Lifetime Learning Credit lives up to its name. It targets not only college, graduate, and professional students, but also adults going back to school or taking courses to improve or update their skills. Students do not have to carry a minimum course load to be eligible, and there is no limit on the number of years the credit can be used.

For 2016, a family could claim a 20 percent tax credit for the first $10,000 of qualified tuition and fees. This makes the maximum Lifetime Learning Credit $2,000 per return. Unlike the American Opportunity Credit, the top Lifetime Learning Credit is determined on a family basis. Regardless of how many family members are taking courses, the maximum credit is $2,000.

My wife is going to law school part-time at night, and my son is in his first year at Texas Tech. Can I take both the Lifetime Learning Credit and the American Opportunity Credit this year?
You can take both the American Opportunity Credit and Lifetime Learning Credits in the same year if your wife qualifies for the Lifetime Learning Credit and your son qualifies for the American Opportunity Credit. You cannot take both the American Opportunity Credit and Lifetime Learning Credits for the same student in the same tax year. However, you now can take the American Opportunity and Lifetime Learning Credits in the same year that you take a distribution from an Education IRA or make a tax-free withdrawal from a state-sponsored Section 529 plan. Just be sure that the distribution isn’t used for the same expenses for which the credit is claimed.

Our family makes too much money to qualify for either the Lifetime Learning Credit or the American Opportunity Credit, but we have two kids in college. Are there any tax deductions out there for taxpayers like us?
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. For 2016 you qualify for the a deduction of up to $4,000 if your modified adjusted gross income (MAGI) is not more than $80,000 for single filers and $160,000 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. If you’re a single filer and your MAGI is less than $65,000, you qualify for the maximum deduction of $4,000 (the same goes for joint filers whose MAGI is less than $130,000).

No tuition and fees deduction is allowed if your MAGI exceeds $80,000 for single filers and $160,000 for joint filers.
The $4,000 is the annual maximum, regardless of how many students in your family qualify. The tuition deduction may be claimed whether or not you itemize your deductions.

You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. Enter the deduction on Form 1040, line 34, or Form 1040A, line 19.

 American Institute of Certified Public Accountants Texas State Board of Public Accountancy