Education tax credits can be tricky. Please follow the following steps to ensure you are properly addressing this credit.
1) The American Opportunity Tax Credit is unchanged. It is a tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax. Only full time students in the first four years of post-secondary education are eligible.
2) The Lifetime Learning Credit is unchanged. The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return. The LLC is not refundable. So, you can use the credit to pay any tax you owe but you won’t receive any of the credit back as a refund. This credit is also available to part time students and for students beyond a four year degree.
3) The Tuition and Fees Deduction has not been extended. This deduction had expired in 2016 but was extended through 2017.Taxpayers had been allowed to reduce their taxable income by up to $4,000 with this deduction.
4) The student loan interest deduction remains unchanged. Student loan interest is interest you paid during the year on a qualified student loan. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.
5) The business deduction for work-related education eliminated for employees has been eliminated. Previously this was claimed as an itemized deduction along with other employee business expenses which have all been eliminated.
6) The new tax law did not make changes to the rules for scholarships, fellowships and grants.
If you have questions, let the experts at Republic Tax Relief help with your education tax queries.