OLT TAX CORNER ~ Education Credits/ Tuition & Fees Deduction/ Student Loan Interest

No. You cannot. Expenses that qualify are tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. Eligible expenses also include student activity fees you are required to pay to enroll or attend the school. For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school. Pre-School and private tuition for elementary and secondary school does not qualify.

Qualified expenses do not include room and board, insurance, medical expenses (including student health fees), transportation, or other similar personal, living, or family expenses.

No. You cannot. For each student, you can elect one of the credits. For example, if you elect to take the American Opportunity credit for a child on your tax return, you cannot, for that same child, also claim the lifetime learning credit for the current tax year. If you are eligible to claim the American Opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both.

Expenses that qualify are tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution. Eligible expenses also include student activity fees you are required to pay to enroll or attend the school. For AOTC only, expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school.

No. Expenses paid to attend high school do not qualify for the education credits because a high school is not an eligible educational institution. An eligible educational institution is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit and privately-owned-for-profit postsecondary institutions.

No. You cannot claim a credit for the amount of higher education expenses paid for by tax-free scholarships.

If tuition was paid by a government subsidized loan, can I still take the American Opportunity or Lifetime Learning Credit?

If you take out a loan to pay higher education expenses, those expenses may qualify for the credit if you will be required to pay back the loan. The credit is claimed in the year in which the expenses are paid, not in the year in which the loan is repaid.

If you received a 1098-T, you can take that as an education credit.

The education credit reduces your tax liability.

These need-based grants are treated as scholarships for purposes of figuring their taxability. They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Only the taxable amount must be reported.

The maximum deductible interest on a qualified student loan is $2,500 per return. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status. OLT.com software will calculate this amount for you.

A Coverdell Education Savings Account (ESA) is a savings account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary (who is under age 18 or is a special needs beneficiary) of this account in any year cannot be more than $2,000, no matter how many accounts have been established. The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary's qualified education expenses at an eligible education institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books, fees, etc., at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. The American Opportunity and Lifetime Learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Refer to Publication 970 for more details. If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

If there is a balance in the Coverdell ESA at the time the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.