Last month, it was virtually impossible to turn on the TV or pick up a newspaper without seeing a screaming headline detailing the latest developments in the “fiscal cliff” debate. As you probably know, that debate ultimately ended with an agreement which kept the nation from going “over the cliff”, at least temporarily.
What you may not realize is that the legislation also contains provisions which benefit most students and their families.
Specifically, deductions for most tuition expenses will once again be allowed. Known as the American Opportunity Tax Credit, this legislation provides a tax break for most middle class families as they attempt to pay for higher education.
This provision allows families to deduct up to $2,500 per year, per student, for tuition, fees, and other course materials (such as lab fees). If your income is less than $160,000 as a married couple, or $80,000 as a single taxpayer, you should be able to receive this credit for each student, during each of his or her first four years.
The bill provides a credit, dollar for dollar, on the first $2,000 you spend on qualified college costs. It provides a 25% credit for the next $2,000, which gives you a possible total of $2,500. As an added benefit, up to $1,000 of this credit is refundable—which means you’ll get a check if you don’t owe taxes at the end of the year.
This has repercussions on student loans, as well. Interest paid on student loans may be deductible as well, depending on your circumstances. If your adjusted gross income is under $130,000 (if filing as a couple) or under $65,000 (if you’re single), you may be able to deduct up to $2,500 annually.
So while very few of us enjoyed the partisan bickering that plagued Washington DC during the holiday season, the eventual outcome provides some good news for families and students who face rapidly increasing education costs. If you’d like to learn more about these opportunities, or if you’d like advice specific to your situation, please get in touch with us today!