After tuition, one of the biggest expenses associated with college is the cost of housing. Although the IRS does provide some relief for college students, it doesn’t explicitly provide deductions or credits to cover rent or the cost of a room in a dorm or other college housing. However, If you take full advantage of the tax incentives for students, you can still reduce your overall college costs.
Lifetime Learning Credit
The lifetime learning credit is one of two education credits. The lifetime learning credit is geared toward career education and allows students to claim credits for postsecondary education and job skill improvement courses for an unlimited number of years. Also, the lifetime learning credit does not require that a student be pursuing a program leading to a degree to be eligible. To qualify as an eligible student under the lifetime learning credit, you must be enrolled in one or more courses at an eligible educational institution. Filers may qualify for up to $4,000 in assistance from the lifetime learning credit.
American Opportunity Credit
To qualify for the American opportunity credit, the student must not have completed four years of college education prior to the current tax year. The IRS requires that a student be enrolled at least half-time in a program leading to a degree or certificate. The student must also not have been convicted of a federal or state felony for possessing or distributing a controlled substance. Qualified students are eligible for up to $2,500 per student for the American opportunity credit.
Tuition and Fees Deduction
To claim the tuition and fees deduction, a student must be enrolled in one or more courses at an eligible educational institution. The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000.
The American opportunity credit, lifetime learning credit, and tuition and fees deduction cover only tuition and expenses related to enrollment. For example, students, or parents who are claiming a student’s expenses on their return, can claim tuition, student activities deductions, and other course-related expenses. But housing does not qualify as an education expense.
The income limit for claiming the American opportunity credit is $90,000 if single and $180,000 if married filing jointly (same for the tuition and fees deduction). For the lifetime learning credit, the income limit is $62,000 if single and $124,000 if married filing jointly.