Brady and Associates, LLC

Serving your financial needs today and tomorrow

Education Expenses

The credit can help pay for college or vocational training. The maximum credit reaches $2,500 per student for the first four years of post-secondary education.  It is a 100 percent credit for the first $2,000 and a 25 percent credit on the next $2,000 paid in eligible expenses.  Qualified expenses now includes course material as well as tuition. 

Tax-free grants lower the amount of tuition that is eligible for the credit. The student must attend a qualified institution and no two taxpayers can claim the credit in the same year. This means that either the student or the student's parent/guardian may take the credit, but not both.

These changes are in affect for 2009 and 2010 only.

 

American Opportunity Tax Credit—formerly called Hope Credit

The Lifetime Learning credit can also help pay for college or vocational training expenses.  It is available for all years of post-secondary education and for courses to acquire or improve job skills.  It is available for one or more courses and is available for an unlimited number of years.  This credit can be used in any year that the Hope is not taken  It's available for 20 percent of eligible expenses, up to a maximum of $2,000 per taxpayer, not per student. The student cannot have a felony drug charge conviction to take this credit.

Lifetime Learning Credit         

Student Loan Interest Payments

Coverdell Education Savings Accounts

Coverdell education savings accounts (ESAs) can also help pay for college, as well as secondary and elementary, schooling. The maximum annual contribution is $2,000 per beneficiary. Any distribution not made for education costs, will be taxed, and an additional 10 percent penalty will be added. This is also true of students whose distributions fund attendance at a military academy, if the student is expected to serve upon dismissal from the institution. Distributions are treated like gifts and may be used for tuition, books, supplies, and equipment.

Student loans may also produce a tax break. There is an above-the-line deduction for interest paid on education loans. For taxpayers making less than $50,000 ($100,000 for joint filers), $2,500 is deductible annually. Only the loan holder can take this deduction. If the loan is taken out in the student's name, but the parent is paying for it, the parent cannot deduct the interest.

Below are the various tax credits, deductions and savings options for education.