Education Tax Deductions Post 2

Wednesday, June 8, 2011 10:25
Posted in category Shopping

HOPE SCHOLARSHIP TAX CREDITS
These credits are available for the first two years of post-secondary education. The maximum credit you can claim is 100% of the first $1,000 you pay in tuition and fees, and 50% of the next $1,000. In other words, it maxes out at $1,500. You can claim the credit on your tax return for each college student in your family. That could be yourself, your spouse or your children.

Education Tax Deductions
1. Education IRA
2. Hope Scholarship Tax Credits
3. Lifetime Learning Tax Credit
4. IRA Withdrawals
5. Deduction of Loan Interest
6. Child Tax Credit
It begins to phase out at $80,000 AGI and disappears entirely at $100,000 ($40,000 to $50,000 for single filers).

LIFETIME LEARNING TAX CREDIT
This credit is available for any undergraduate or graduate student, including those in medical or law school. Until 2002, a maximum credit of $1,000 is available — 20% of up to $5,000 of qualifying tuition and fees (and some other college expenses). It increases to $2,000 in the year 2003 — 20% of the first $10,000 in tuition and fees. This tax credit kicked in as of June 30, 1998. That is, both the course of education and paying for it must begin after June 30, 1998.

$TIP: A family with more than one member in school can take both the Hope and Lifetime Learning tax credits but cannot take both credits for the same child in the same tax year. In other words, you can claim different credits for different kids in the same year. However, you cannot claim either credit in a year that you exclude from your gross income a distribution from the Education IRA or receive interest from redeeming EE Savings Bonds.

IRA WITHDRAWALS
You can withdraw money from your IRA before age 59 1/2 without paying a penalty if the money is used to pay higher-education expenses — for yourself, your spouse, your child or your grandchild. You’ll still have to pay regular taxes on the money you withdraw.

Education Tax Deductions
1. Education IRA
2. Hope Scholarship Tax Credits
3. Lifetime Learning Tax Credit
4. IRA Withdrawals
5. Deduction of Loan Interest
6. Child Tax Credit
DEDUCTION OF LOAN INTEREST
You can deduct interest paid on students loans — for yourself, your spouse or a child. The maximum annual deduction is $1,000 in 1998, rising to $2,500 in 2001. It applies to the first 60 months of repayment.

The deduction is phased out as modified AGI rises from $40,000 to $55,000 on single returns and from $60,000 to $75,000 on joint tax returns.

You don’t have to itemize to get this credit. The credit goes to the person who took out the loans, which, of course, is often the college student.

CHILD TAX CREDIT
Beginning in 1998, families with AGIs of $100,000 or less will receive a $400 tax credit for each child under the age of 17. This credit will rise to $500 in 1999. The amount of the tax credit is reduced by $50 for each $1,000 (or part of $1,000) of modified AGI above $100,000 for joint filers, $75,000 for single filers or heads of household, and $55,000 for marrieds filing separately.

All of this is a lot to take in. The IRS never makes it easy.

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