Tax incentives
Get federal income tax relief and take advantage of education-related tax credits and deductions.
These benefits can significantly reduce your tax liabilities, by thousands of dollars in some cases.
Hope tax credit
For 2007, the Hope credit could provide your family up to a $1,650 maximum tax credit per year per dependent student.
You may claim it for two years, if you:
- Have not completed the first two years of postsecondary education (generally, if you're a freshman or sophomore).
- Are enrolled in a program that leads to a degree, certificate, or other recognized education credential.
- Are taking at least half the normal full-time course load for your major for at least one academic period beginning during the calendar year.
- Are free of any felony conviction for possessing or distributing a controlled substance.
Lifetime learning tax credit
It's a tax credit of 20% of the first $10,000 paid for qualified tuition and related expenses for yourself, your spouse, or a dependent you claim as an exemption.
The maximum amount of credit you can claim for 2007 is $2,000 (20% of $10,000) for all students in the family.
What are the differences?
| Up to $1,650 credit per eligible student |
Up to $2,000 credit per return |
| Available only until the first two years of postsecondary education are completed
|
Available for all years of postsecondary education and for courses to acquire or improve job skills |
| Available only for two years per eligible student |
Available for an unlimited number of years |
| You need to be pursuing an undergraduate degree or other recognized education credential |
You don't need to be pursuing a degree or other recognized education credential |
| You must be enrolled at least half time for at least one academic period beginning during the year |
You can get this benefit for enrolling in one or more courses |
| No felony drug conviction on student's record |
Felony drug conviction rule does not apply |
Tuition and fees deduction
You can reduce income subject to tax by up to $4,000 for tuition and related expenses. Qualifying expenses are the tuition and fees required for enrollment or attendance at an eligible college, university, or vocational school. You, your spouse, or your dependent must have incurred these expenses.
To claim this deduction, taxpayers must file federal tax Form 1040; you do not need to itemize deductions.
Student loan interest deduction
If you took out student loans, you may be able to deduct up to $2,500 in interest paid yearly. To qualify, you should have used proceeds from the loan toward qualified higher education expenses, including tuition, fees, room, board, supplies, and other related expenses by you, your spouse, or dependent.
To claim this deduction, taxpayers must file federal tax Form 1040 or 1040A; you do not need to itemize deductions.