Smart back-to-school money moves for grown-ups, part 3
Mar 11, 2010 6:52 AM
• American opportunity credit. This an expanded version of the old Hope credit, available in 2009 and 2010. If you haven’t completed four years of post-secondary education, you might be eligible to take this credit of up to $2,500. To do so, you must be working toward an undergraduate degree or “other recognized educational credential,” and you must be enrolled at least half time for at least half of the year. A credit, you’ll recall, is even better than a deduction, since it comes right off the tax you’d owe rather than from the income on which you’re taxed.
You will have to meet certain income requirements and other conditions. To meet the income requirement, your modified adjusted gross income can not exceed $90,000, or $180,000 in the case of a joint return.
• Lifetime Learning credit. This tax break allows you to claim up to a $2,000 credit each year for post-secondary education, including graduate school, or courses to acquire or improve your job skills. Your modified adjusted gross income can not exceed $60,000, or $120,000 for joint filers.
• Tuition and fees deduction. Students at any level of post-secondary education who meet the income criteria may be able to deduct qualified education expenses up to $4,000. To meet the income criteria, your modified adjusted gross income must not exceed $80,000, or $160,000 for joint filers. This deduction is taken as an adjustment to income, which means you can claim it even if you do not itemize deductions on a Schedule A.
Note that even if you qualify for all of them, you can choose only one of the three tax breaks discussed here. Most people will find the American opportunity credit provides the greatest tax savings, according to Eric L. Smith, an IRS spokesman. Rules for these credits and other education-related tax breaks are available for your downloading pleasure in IRS Publication 970.
• Lifetime Learning credit. This tax break allows you to claim up to a $2,000 credit each year for post-secondary education, including graduate school, or courses to acquire or improve your job skills. Your modified adjusted gross income can not exceed $60,000, or $120,000 for joint filers.
• Tuition and fees deduction. Students at any level of post-secondary education who meet the income criteria may be able to deduct qualified education expenses up to $4,000. To meet the income criteria, your modified adjusted gross income must not exceed $80,000, or $160,000 for joint filers. This deduction is taken as an adjustment to income, which means you can claim it even if you do not itemize deductions on a Schedule A.
Note that even if you qualify for all of them, you can choose only one of the three tax breaks discussed here. Most people will find the American opportunity credit provides the greatest tax savings, according to Eric L. Smith, an IRS spokesman. Rules for these credits and other education-related tax breaks are available for your downloading pleasure in IRS Publication 970.
Tomorrow: Tapping your kids’ 529 plans or your own IRA.
—Greg Daugherty
Greg writes the “Retirement Guy” column each month in our Consumer Reports Money Adviser newsletter.
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