Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit has a wider availability. This credit can be used for graduate school, undergraduate expenses, even professional or vocational courses. Plus, there’s no limit to how many years you can claim it. This credit, however, is nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 Lifetime Learning Credit, but had a tax liability of $500 for the year, you’d get a credit for $500.
Credits vs. deductions: What’s the difference?
- Credits reduce the amount of tax that you owe on your tax return.
- Deductions reduce the amount of income that’s considered taxable: less income taxed means less income tax.
The two deductions below are not available if you are filing married filing separately, or if someone else – such as a parent – claims you as a dependent on their return. Parents can still claim the deductions, provided they paid the expenses.
Tuition and Fees Deductions
If you don’t qualify for one of the education credits, you may still be able to deduct your tuition and fees. The deduction can cut your taxable income by up to $4,000. It’s taken as an adjustment to income, which means you can claim this deduction even if you don’t itemize deductions.The income limit for this deduction is $80,000 for single taxpayers, or $160,000 for married filing jointly.
Student Loan Interest DeductionThis deduction helps to defray the interest you have on your student loans. This deduction can reduce your taxable income by up to $2,500. Like the tuition and fees deduction, it’s taken as an adjustment to income, so you can claim it even if you don’t itemize deductions.
But: Parents claiming two or more college kids as dependents on their return can claim one of these tax breaks for one student and another for a different student.