To help deal with the rising cost of college tuition and the growing burden of student loan debt, taxpayers mostly use these credits and deductions: American Opportunity Credit, Lifetime Learning Credit, and Student Loan Interest Deduction. Simply plugging the numbers from the 1098-T (Tuition Statement) and/or 1098-E (Student Loan Interest Statement) and answering the questions prompted by software suffices for most people as the software will determine which credit or deduction will bring maximum tax benefit. Here’s some supplemental FAQ that software may not always catch:
What education expenses are qualified?
For most credits being claimed, the qualified expenses are generally: Tuition, Books and Course-related Fees. But there are other education expenses that are qualified for some credits, and not for others. See the next two Q and A for some examples.
Does Room and Board qualify as an education expense?
For the American Opportunity Credit and Lifetime Learning Credit, No.
For the Student Loan Interest Deduction, Yes. This means if you used your all or part of your student loans to pay for the dorm or rent, then you can deduct the interest.
I bought a computer and I paid for internet to be able to do coursework. Are those expenses qualified education expenses?
No, unless you are utilizing a Coverdell Education Savings Account (ESA) or Qualified Tuition Program (529 plans). These are savings accounts in which people (usually parents) contribute money which then goes into certain investments. The interest earned from these accounts are tax-free if it is eventually used to pay for education expenses.
I took out a direct PLUS loan for my child (i.e. parent loan). Can I claim the student loan interest for that?
Yes, if you claimed him or her as your dependent at the time you took out the loan (or could have claimed him or her under certain circumstances).
If I paid for my tuition and education expenses with student loans entirely, can I still claim the American Opportunity Credit and Lifetime Learning Credit?
Yes. Only in the year you paid for those expenses. (Not in the year you paid back the student loans).
My employer has been paying for some classes that I’ve taken through them (i.e. Employer-Provided Educational Assistance). What impact does this have on my tax return?
None, if the cost of education benefits is not over $5,250. If it’s more than that, the excess most likely will be treated as part of your wages (Form W-2, box 1).
