The IRS offers some tax breaks that can help you recover some of the money you spent on higher education, such as tuition costs or interest you’ve paid on student loans. This can help make your college education a bit more affordable in the long run.
There are two different tax credits that you can assess to your expenses in terms of supplies, books, equipment fees, and tuition. These credits have different rules, so check to see which you qualify for:
- American Opportunity Credit: Claim up to $2,500 for the first four years of post-secondary school
- Lifetime Learning Credit: Claim up to $2,000 per student year, applicable to any fees or required tuition in order to attend
Students may be able to add some extra cash to their pocket even if they aren’t required to file a tax return. Some of the additional student credits may be available in these situations.
Student Loan Interest Deduction – If you used student loans to pay for your education, you are eligible to deduct any interest you paid during the tax year. This deduction works for any loans, not just federal loans, which were used for higher education. The deduction caps at $2,500 each year.
IRA Disbursements – You are eligible to use disbursements from your IRA in order to pay for higher education expenses for yourself, spouse or dependent. The total is subject to federal income tax, however you won’t be assessed early withdrawal fees.