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 | | | | Married filing jointly | | Single | | Hope credit | 105,000 | 52,000 | | Lifetime learning credit | 105,000 | 52,000 | | Tuition deduction | 160,000 | 80,000 | | Student-loan interest deduction | 130,000 | 65,000 |
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| Notes: Benefits not available if married filing separately. Both credits are partial with income at $85,000 if married, $42,000 if single. Tuition deduction reduced to $2,000 at incomes over $130,000 married, $65,000 single. Student-loan deduction phases out at $100,000 if married; $50,000 if single. | | Source: IRS. |
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NEW YORK (MONEY Magazine) - If you have kids, you know how expensive college can be. What you may not know is that tax credits and deductions can offset the pain.
Yet as the IRS' national taxpayer advocate, Nina Olson, says, "You practically have to have a Ph.D. to figure them out."
A brief education:
The basics.
On April 15, education tax breaks come in four forms: the Hope credit (100 percent of the first $1,000 you pay in tuition and related costs, 50 percent of the next $1,000, for the first two years of college); the lifetime learning credit (up to 20 percent of $10,000 in costs, or $2,000); the tuition-and-fees deduction (up to $4,000 a year); and the student-loan interest deduction (up to $2,500, once you're repaying the loan). All are subject to income limitations (see the table).
The twists.
You are only allowed to claim one credit per child, and you cannot take either the Hope or the lifetime credit along with the tuition deduction for the same student during the same year.
If you have two children in college at the same time, you may be able to mix and match credits and write-offs.
The strategy.
Use credits before deductions. A $1 credit reduces your taxes by $1; a $1 deduction, in the 25 percent tax bracket, saves you only 25¢. The exception: If you qualify only for a partial credit, the deduction may be worth more.
Which credit to start with? That depends on how much school costs.
If your child attends an expensive private university that runs at least $10,000 a year, the full $2,000 lifetime learning credit is more valuable than the $1,500 Hope credit.
If tuition doesn't reach $10,000 at your child's school, the Hope may be worth more.
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