As summer winds down, students head back to school.
1. Check eligibility for an education credit
If you, your spouse, or dependent is attending college or graduate school starting this Fall, you may qualify for an education credit. The American Opportunity credit of up to $2,500 is limited to the first four years of higher education and 40% of the credit is refundable. The lifetime learning credit of up to $2,000 is for any higher education; no portion is refundable.
Most of the rules related apply to both credits. However, there are separate modified adjusted gross income limits for claiming each credit.
2. Get ready for changes in student loan applications
Starting this October 1, you can submit the FAFSA for the school year beginning July 1, 2017 and ending June 30, 2018. The tax information on this application is from your tax year 2015 tax return. You can download your tax information automatically using the IRS Data Retrieval Tool at https://fafsa.ed.gov/help/irshlp8.htm.
You can find more information about FAFSA changes from the Department of Education at https://studentaid.ed.gov/sa/sites/default/files/2017-18-fafsa-updates-students-parents.pdf.
3. Teachers can deduct out-of-pocket costs
If you are an educator in grades K through 12, you can deduct up to $250 of your out-of-pocket costs for classroom materials as an adjustment to gross income; no itemizing is required.
The PATH Act signed into law last December made key changes:
4. Save for higher education
While there are tax incentives that help defray the cost of paying for an education, such as education credits and the tuition and fees deduction, it is important to save for this important and expensive expenditure. There are tax-advantaged savings accounts that provide for tax deferral on earnings and tax-free withdrawals for qualified education costs:
5. Deduct student loan interest
Out of school but still paying back loans? You can deduct interest up to $2,500 each year and you don’t have to itemize personal deductions to do it. However, the student interest deduction is limited for those with modified adjusted gross income (MAGI) over a set amount. For 2016, a full deduction is allowed for those MAGI up to $65,000 ($130,000 on a joint return). A partial deduction is allowed for those with MAGI between $65,000 and $80,000 ($130,000 and $160,000 on a joint return).
Conclusion
There are many education-related tax breaks for saving for education, paying education costs, and being an educator. Check on the provisions that may apply to you and your family.
Note: There are some proposals in Congress to create an exclusion for employer-paid student debt. If anything happens we’ll let you know about it.
The estimated value of an asset at the end of its useful life. Salvage value is ignored by ACRS and MACRS rules.