Get a Break on Your Tax Return
Students and parents of students: Chances are you will borrow student loans and likely more than one. Good news: you can save money on your income taxes when you know how to leverage your student loans the right way.
Tax Relief
Income tax deductions are one of the best ways the government has found to offer Americans relief from some of the more burdensome costs associated with education, like student loans. You have to file your income taxes every year anyway, so why not learn right now and right here how you can save money on your bottom line?
For those who qualify, three forms of educational deductions and tax credits are available:
* Tuition and Fees Tax Deduction
* Hope Credit
* Lifetime Learning Credit
What You Need to Know About the Tuition and Fees Deduction
IRS Publication 970 outlines the current criteria for filing a tax return with attached deductions for educational loan interest. Not everyone qualifies. Here are the basic requirements you must satisfy to be eligible to deduct the interest from your student loans on your income taxes through 2007 (NOTE: the Tuition and Fees Tax Deductions option will expire following the 2007 income tax filing):
* You must either be a student claiming your own deductions or the parent or guardian of a student or the spouse of a student.
* You are eligible for certain deductions—in 2006 this was between $2,000 and $4,000—depending upon your modified adjustable gross income (MAGI), filed singly or jointly.
* You are ineligible for deductions when your MAGI is above a particular income level. (In 2006 this was above $80,000 for singles and $160,000 for joint).
You must have used your student loan(s) solely for educational expenses in order to qualify, often called "qualified student loans." Make sure you adhere to the IRS' definition of a student: The student for whom you are itemizing interest deductions must be yourself, a spouse or one of your children (a dependent) and must be participating in a college program at least half-time.
Types of Deductible Interest
Student loan interest can come attached to a few types of educational loans, all of which qualify for deductions:
* Interest on student loans.
* Interest on student loan consolidations.
* Interest on line of credit used to pay educational expenses.
Make sure to check with your tax advisor or the IRS to make sure all the essential criteria are in place before you file your tax return.
Educational Tax Credits
Use the Hope Credit (sometimes called the Hope Tax Credit) and the Lifetime Learning Credit as tax saving tools. Depending on your income and tuition, you may qualify to claim one of these credits for each student you claim in a tax return. Students that live within the Gulf Opportunity Zone (GO Zone) may qualify for even deeper credits.
* Claim the Hope Credit for a student that is a freshman or sophomore in a degree program, who is attending at least half time. You are limited to two years of claims per student. Maximum claim may be $1,650.
* Use the Lifetime Learning Credit to claim deductions for students that are taking any number of courses, not necessarily toward a degree. They do not even have to be attending half time. The key is, however, that the course work associated with the credit claim must be intended to advance the student's career status. Maximum claim may be $2,000.
Students and parents of students: Chances are you will borrow student loans and likely more than one. Good news: you can save money on your income taxes when you know how to leverage your student loans the right way.
Tax Relief
Income tax deductions are one of the best ways the government has found to offer Americans relief from some of the more burdensome costs associated with education, like student loans. You have to file your income taxes every year anyway, so why not learn right now and right here how you can save money on your bottom line?
For those who qualify, three forms of educational deductions and tax credits are available:
* Tuition and Fees Tax Deduction
* Hope Credit
* Lifetime Learning Credit
What You Need to Know About the Tuition and Fees Deduction
IRS Publication 970 outlines the current criteria for filing a tax return with attached deductions for educational loan interest. Not everyone qualifies. Here are the basic requirements you must satisfy to be eligible to deduct the interest from your student loans on your income taxes through 2007 (NOTE: the Tuition and Fees Tax Deductions option will expire following the 2007 income tax filing):
* You must either be a student claiming your own deductions or the parent or guardian of a student or the spouse of a student.
* You are eligible for certain deductions—in 2006 this was between $2,000 and $4,000—depending upon your modified adjustable gross income (MAGI), filed singly or jointly.
* You are ineligible for deductions when your MAGI is above a particular income level. (In 2006 this was above $80,000 for singles and $160,000 for joint).
You must have used your student loan(s) solely for educational expenses in order to qualify, often called "qualified student loans." Make sure you adhere to the IRS' definition of a student: The student for whom you are itemizing interest deductions must be yourself, a spouse or one of your children (a dependent) and must be participating in a college program at least half-time.
Types of Deductible Interest
Student loan interest can come attached to a few types of educational loans, all of which qualify for deductions:
* Interest on student loans.
* Interest on student loan consolidations.
* Interest on line of credit used to pay educational expenses.
Make sure to check with your tax advisor or the IRS to make sure all the essential criteria are in place before you file your tax return.
Educational Tax Credits
Use the Hope Credit (sometimes called the Hope Tax Credit) and the Lifetime Learning Credit as tax saving tools. Depending on your income and tuition, you may qualify to claim one of these credits for each student you claim in a tax return. Students that live within the Gulf Opportunity Zone (GO Zone) may qualify for even deeper credits.
* Claim the Hope Credit for a student that is a freshman or sophomore in a degree program, who is attending at least half time. You are limited to two years of claims per student. Maximum claim may be $1,650.
* Use the Lifetime Learning Credit to claim deductions for students that are taking any number of courses, not necessarily toward a degree. They do not even have to be attending half time. The key is, however, that the course work associated with the credit claim must be intended to advance the student's career status. Maximum claim may be $2,000.
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