Lakeland High School

Tax Incentives

tax incentives for Education-related Expenses?

Hope Credit

Tax credit is up to $1,500/year for each eligible student

100% tax credit for the first $1,500 paid for qualified expenses. 50% tax credit for the second $1,000.

You may claim Hope Credit for two years. Student must be in first or second year and enrolled at least half time for one period of the tax year.

Covers tuition and fees.

You qualify by paying tuition and fees for yourself (if independent), your spouse, or your dependent child.

Student activity fees, athletic fees and other expenses do not count toward your credit.

Grants and scholarships will reduce the tuition and fees used to determine your credit.

Eligibility decreases for Modified Adjusted Gross Incomes (MAGIs) between $43,000 - $53,000 (filing single) and $87,000 - $107,000 (filing jointly married). Can't claim MAGIs above these limits.

 You benefit from tax credits only to the extent you owe federal income tax. If you don't owe taxes, you won't receive a tax credit.

No felony drug conviction on student's record.

 

Lifetime Learning Credit

May claim up to $2,000/year in federal taxes.

20% tax credit for the first $5,000 paid for qualified expenses. After 2002, a 20% tax credit on the first $10,000 paid.

No limit on number of tax years you may claim Lifetime Learning Credit.

Covers tuition and fees.

Available for all years of post secondary education and to students taking individual classes to improve job skills

You qualify by paying tuition and fees for yourself (if independent), your spouse, or your dependent child.

Student activity fees, athletic fees and other expenses do not count toward your credit.

Grants and scholarships will reduce the tuition and fees used to determine your credit.

Eligibility decreases for Modified Adjusted Gross Incomes (MAGIs) between $43,000 (filing single) and $107,000 (filing jointly married). Can't claim MAGIs above these limits.

You benefit from tax credits only to the extent you owe federal income tax. If you don't owe taxes, you won't receive a tax credit.

Student doesn't need to be pursuing a degree or other recognized credential.

Felony drug conviction rule doesn't apply.

 

Coverdell Education Savings Account

For each child under age 18, families may deposit $2,000 per year into a Coverdell Education Savings Account (formerly an Education IRA) in the child's name. Earnings will accumulate tax-free, until distributed. No taxes will be due upon withdrawal if the money is used to pay for postsecondary tuition and required fees, books, equipment, and eligible room and board expenses. Once the child reaches age 30, the account must be closed or transferred to a younger member of the family.

A taxpayer's ability to contribute to a Coverdell account is phased out when the taxpayer is a joint filer with an adjusted gross income of $220,000, or a single filer with an adjusted gross income of $110,000. Note that a student who receives a tax-free distribution from a Coverdell account can also benefit from the Hope or Lifetime Learning education tax credits in the same year. For more information on these tax benefits, read IRS Publication 970, Tax Benefits for Higher Education. You can also consult your tax advisor.

 

Student loan interest deduction

Parents and independent students may deduct interest on loans borrowed to meet college expenses

Deduction is for interest payments made during the first 60 months (5 years) in which interest payments are required.

Deduction diminishes for Modified Gross Income (MAGIs) of $55,000 (single filers) and $105,000 (married, filing jointly). Cannot deduct if income is above these amounts.

Maximum deduction in 2001 and beyond, $2,500.

You aren't required to itemize to receive the deduction.

Dependents may not claim the deduction.

Married couples must file jointly to receive the deduction.

 

Using IRA withdrawals for college costs

You may withdraw from an IRA to pay higher education expenses for yourself, your spouse, your child or grandchild.

You will owe federal income tax on the amount withdrawn, but won't be subject to the 10% early withdrawal penalty.