Tax Advantages for College Cash – Series 2 of 2

The American Opportunity Credit replaces the Hope credit.  It is for full-time students and is figured per student.  Your expenses incurred during the first four years of post-secondary education are used to determine the credit with a maximum credit is $ 2,500.  Up to 40% of this credit is Refundable, meaning you could receive a $ 1,000 refund even if you owe no tax!

The Lifetime Learning Credit can be used by any student from undergraduate to graduate or even course work to improve job skills.  Plus, the student doesn't have to be enrolled full time.  However, it is by taxpayer household, not per student.  Maximum credit is $ 2,000. 

Tuition and Fees Deduction is an adjustment.  Meaning it can reduce taxable income by as much as $ 4,000.  This can be used along with Coverdell ESAs and 529 Plans, as long as you paid for different educational expenses with various funds.  There are adjusted gross income limitations.

Student Loan Interest Deduction is another adjustment, allowing a reduction of taxable income by up to $ 2,500.  It has filing status and adjusted gross income limitations.

If you cashed in Savings Bonds to pay for education expenses, the interest could be tax-free.