As tax time approaches, those in colleges and universities should be aware of the student tax breaks that are available to them.
Student tax breaks help offset loan debt
According to the U.S. Government Accountability Office, nearly $800 million in college tuition tax benefits were left unclaimed in 2009. That averages out to about $466 for each student.
The New York Federal Reserve Bank says that Americans carried some $42 billion in student loan debt at the start of 2013. But there are several student tax breaks available that could help offset some of that expense.
The American Opportunity Credit
The American Opportunity Credit has been extended until 2017. It allows for students earning $80,000 or less a year to claim a dollar-for-dollar credit on the first $2,000 of college-related expenses. In addition, it allows them to claim 25 percent of their next $2,000 worth of expenses. That effectively cuts $4,000 worth of expenses by more than half. Married couples making $160,000 or less also qualify.
The Lifetime Learning Credit
The Lifetime Learning Credit expired at the end on 2011, but it is back for 2013. It grants students a tax credit of up to $2,000 for tuition and related fees and materials. The tax break is for those earning $60,000 or less, or $120,000 for married couples filing jointly.
Waiting on Form 8863
You can either apply for the American Opportunity Credit or for the Lifetime Learning Credit, but not for both. However, to apply for either, you will need to file a Form 8863, which the IRS says won’t be available until the middle of February. The tax agency is blaming the delay on the “Fiscal Cliff” deal cut by the Administration and Congress on January 1.
According to IRS spokesman Bill Brunson, changes in the tax code has delayed its form review process. “There was a heavy workload,” he said. “This form was scheduled to be reviewed, but because of the volume, we didn’t have time to complete it all. We are addressing the issue.”
The IRS estimates that 1,188,000 taxpayers will file a Form 8863 this year.
Here are a couple deductions also available to some students this tax season.
Tuition and fees deductions
Students earning $80,000 or less — or $160,000 for joint-filers — can deduct up to $4,000 in tuition and fees from their taxable income. This deduction is similar to the American Opportunity Credit, and you can only take one or the other.
Student loan interest deduction
The Student loan interest deduction allows those carrying student loans to deduct up to $2,500 of interest paid on the loan from their taxable income.