Tax Incentives & Deductions
Federal tax credits and deductions are the newest forms of federal aid. A tax credit is money which can be subtracted from the amount of taxes you owe. In order to receive a tax credit, you must complete a federal tax return, meet certain federal guidelines, and pay taxes. Tax credits are subtracted directly from the tax a family owes. Tax deductions differ from tax credits in that deductions are subtracted from your taxable income.
There are two tax credits available to help offset the costs of higher education by reducing the amount of your income tax: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
More information on the AOTC and LLC
*A taxpayer can only claim one of these credits for the same student in the same year.
American Opportunity Tax Credit
The American Opportunity Credit allows you to claim up to $2,500 per student per year for the first four years of school as the student works toward a degree or similar credential.
For answers to commonly asked questions regarding the AOTC, visit their website.
Lifetime Learning Credit
The Lifetime Learning Credit allows you to claim up to $2,000 per student per year for any college or career school tuition and fees, as well as for books, supplies, and equipment that were required for the course and had to be purchased from the school.
More information on the Lifetime Learning Credit
Student Loan Interest Deduction
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
More information on the student loan interest deduction
For general information, visit the Internal Revenue Service or National Association of Student Financial Aid Administrators (NASFAA).