Education Credits and Deductions

Tax benefits might be available if you’re saving for or paying education costs for yourself or another student who’s a member of your immediate family. However, most benefits apply only to higher education. Plus, you usually can’t claim more than 1 benefit for the same qualifying education expense. Unfortunately, you cannot claim any type of Education Credit or Deduction if your tax filing status is Married Filing Separate.

Education Credits

Two education credits available can reduce the tax you owe dollar for dollar.

American Opportunity Credit

  • This is Available for tax years 2009 through 2017. It´s an expanded Hope Credit.
  • You might be able to claim an American Opportunity Credit of up to $2,500 for qualified education expenses paid for each eligible student. This is a per-student limit you must claim in the first 4 years of higher education. You can claim this credit if (1) you pay qualified education expenses for post-secondary education, (2) you pay the education expenses for an eligible student that is yourself, your spouse, or a dependent for whom you claim an exemption on your tax return, and (3) the student must be enrolled in at least half of a full-time workload in a recognized degree seeking program.

Lifetime Learning Credit

  • You might be able to claim this credit for up to $2,000 for qualified education expenses.
  • You can claim this credit only once per return, but there’s no limit on the number of years you can claim the credit. You can claim this credit if (1) you pay qualified education expenses of higher education, (2) you pay the education expenses for an eligible student, and (3) the eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

Education Benefits

You also might be able to claim 9 other education-related tax benefits.

  • Student-loan interest deduction – If you’ve started to pay back loans you took to finance higher education, you might be eligible to deduct up to $2,500 per return per year. The student loan interest deduction is an adjustment to income, so you can claim the deduction even if you don’t itemize deductions. To learn more, see the Deducting Student- Loan Interest tax tip
  • Student loan cancellation – If you’re responsible for making loan payments and the loan is canceled, you usually must include the amount forgiven in your gross income for tax purposes. However, if your student loan is canceled, you might not have to include the amount in income if you fulfill certain requirements.
  • Student loan repayment assistance – Loan repayment programs provide student loan repayment assistance to participants if those participants provide certain services. These are usually primary health services in areas where shortages of these services exist.
  • Coverdell education savings accounts (ESAs) – Coverdell ESAs are tax-advantaged accounts that allow you to save money for education. The earnings are tax-free if used for qualified education expenses. You can’t deduct contributions to a Coverdell ESA , However money deposited in the account grows tax-free until you withdraw it. To learn more, see the Qualified Tuition Plan (Section 529) tax.
  • Qualified tuition plans – A qualified tuition plan (QTP) is a personal savings plan established for paying a student’s qualified education expenses at an eligible educational institution. Distributions from the account are tax-free if you use the money to pay for qualified expenses, like room and board. See the Qualified Tuition Plan (Section 529) tax tip to learn more. Some ststes allow for the owners contribution to be tax deductable.
  • IRAs – You can take a distribution from your IRA before you reach age 59 1 / 2 without paying the 10% additional tax on early distributions if you pay qualified education expenses for yourself, spouse, children or grandchildren.
  • Tax-free U.S. Savings Bond interest – You must usually pay tax on the interest earned on U.S. Savings Bonds. However, if you cash in savings bonds for qualified education expenses, you don’t have to pay tax on the interest if you meet all requirements. To learn more, see the Individual Retirement Accounts (IRAs) tax tip.
  • Employer-provided educational assistance – If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. So, you don’t have to include the benefits on your return. To learn more, see U.S. Savings Bonds Interest Exclusion
  • Deduction for work-related education – If you’re an employee and you itemize deductions, you might be able to claim a deduction for expenses related to work-related courses you take.

See IRS Publication 970
See IRS Publication 1577