Families with children already in college may qualify for tax deductions for educational expenses. The maximum Hope credit is available for the first two years of undergraduate school. It allows for $1500 of credit. The credit is based upon the first $1000 in qualified tuition and related expenses, and 50 percent of the next $1000 in expenses.
The maximum Lifetime Learning credit is $2000 for each household return. This credit is available for undergraduate and graduate students. It is calculated on 20 percent of the first $10,000 in qualified expenses.
The income phaseout for both credits is $83,000-$103,000 for married couples, filing jointly, and $41,000- $51,000 for everyone else.
However, if your income is too high to qualify for the Hope or Lifetime credits, don’t overlook the new education expense deduction added in 2002. This deduction allows you to claim up to $3,000 for 2003 college expenses. This deduction is taken before you calculate your adjusted gross income. Therefore, it benefits even those who don’t itemize.
To claim this deduction, your adjusted gross income can’t be higher than $130,000 for married, filing jointly, and $65,000 for single taxpayers. The $3,000 maximum goes to $4,000 for 2004 and 2005. However, this deduction is scheduled to phase out after 2005.
You can not claim this deduction if you also claim the Hope or Lifetime Learning tax credits for the same year, for the same student.
Student Loan Interest is largely tax deductible. Education-loan borrowers may be able to deduct up to $2,500 in interest paid yearly on loans used to pay for qualified educational expenses.
To claim this deduction, taxpayers must file federal tax form 1040 or 1040A. Itemizing deductions is not a requirement.
The key to saving the most amount of money possible is to stay informed.
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