If you have a son or daughter who is or will be pursuing a college degree, you may wish to keep in mind the possibility of taking advantage of two income tax credits that may be available in connection with "qualified tuition and related expenses" incurred by your child while attending college. A brief summary of each such credit now follows:
- American Opportunity Tax Credit. This credit is available for each of the first four years of your child's post-secondary education. The measure of the credit is 100% of the first $2,000 of "qualified tuition and related expenses" that your child incurs plus 25% of the next $2,000 of such expenses that he or she incurs each year — with the proviso that if your modified adjusted gross income for the tax year in question is between $80,000 and $90,000 (for a single filer) or between $160,000 and $180,000 (for joint filers), the credit phases out. To the extent not used, 40% of the American Opportunity Tax Credit may be refundable.
- Lifetime Learning Credit. The measure of the Lifetime Learning Credit is 20% of the first $10,000 of "qualified tuition and related expenses" that are incurred during the tax year that are in addition to the "qualified tuition and related expenses", if any, that are taken into account in calculating your American Opportunity Tax Credit for the same tax year. Also, this credit will phase out for single filers whose modified adjusted gross income is between $56,000 and $66,000 and for joint filers whose modified adjusted gross income is between $112,000 and $132,000 for the tax year in question.
- Not all expenses that are incurred in connection with a child's post-secondary education are included as "qualified tuition and related expenses" for purposes of these credits. Instead, qualified tuition and related expenses are limited to tuition and fees required for the enrollment or attendance of one at an educational institution for courses of instruction at that institution. Credits are claimed on IRS form 8863 which must be an attachment to your IRS form 1040 if you're eligible to obtain one or both of these credits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.