4 Biggest Tax Breaks for Education

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The information in this article is up to date for tax year 2023 (returns filed in 2024).

With college tuition on the rise, furthering your education won’t come cheap. According to College Board, in-state students paid an average of $11,260 to attend a public four-year college from 2023-2024. The good news is Uncle Sam offers several tax breaks for education that can make it easier on your wallet.

529 plans

529 plans are a tax-friendly way to save for college. These plans are offered by state and educational institutions and come in two varieties;  prepaid tuition and savings. Prepaid tuition plans give you the opportunity to secure today’s rates for future use. Alternatively, savings plans work by investing your contributions. 529 plans are attractive because not only does your money grow tax-free, your withdrawals won’t be taxed if it’s used to pay for education expenses.

American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit is worth up to $2,500 for students who paid for college expenses during their first four years of post-secondary education. Qualified expenses include tuition, books and enrollment fees but not room and board.  

In addition to lowering your tax bill, the AOTC can also put some extra cash in your wallet.  Up to $1,000 of the credit is refundable if your tax bill is reduced to zero.  

Who is eligible for the AOTC? The student must:

• Be in their first four years of college
• Be pursuing a degree or other recognized credential
• Be enrolled at least part time for one semester
• Have no felony drug convictions

Your modified adjusted gross income also cannot exceed $90,000 ($180,000 if married filing joint).

Lifetime Learning Credit (LLC)

Whether you’re pursuing a degree or just taking a few classes to improve your job skills, an education tax break you need to know about is the Lifetime Learning Credit. This nonrefundable credit is worth up to $2,000 for students who paid for tuition and associated fees.  Unlike the AOTC, there’s no limit on the number of years the credit can be claimed.  

Who is eligible? The student must be:

• Enrolled at an eligible institution for at least one academic period
• Taking courses to get a degree or improve job skills

Your modified adjusted gross income also cannot exceed $90,000 ($180,000 if married filing joint).  Please note, you can only claim one of the education credits on your tax return. When you use ezTaxReturn to do your taxes, we’ll help you choose the appropriate credit for your situation. File on any device in 30 minutes or less.

Student Loan Interest Deduction

Writing the check for your student loan may not be something you look forward to but it does come with a tax perk. Up to $2,500 of your student loan interest may be deductible on your tax return.  

As long as your paid interest is $600 or more for the year, you’ll receive a Form 1098-E from your lender to file with your return.  In order to take the deduction, your modified adjusted gross income must be less than $90,000 ($180,000 if married filing joint).

The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.