Tax deductions for education expenses.

Paying for College
1

<p>What do most of you use as a deduction? I see several ways to do it, but this is our first year filing as parents of a college student. She is in SC and we live in Oregon and I don't want to effect our EFC and thus hurt daughter's chance of getting funds.ie: Lifetime Learning Credit? American Opportunity Credit? I may not have those names right. Thank you for the advice. So far I am really enjoying the information I have gleaned from this site.</p>

2

<p>The American Opportunity tax credit is by far the best education tax benefit. It is a $2,500 credit (based on 100% of the first $2000 of qualified expenses and 25% of the next $2000) ans is partially (40%) refundable. The LLC is a max of $2000 based on 20% of expenses up to $10,000 and none is refundable.</p>

<p>Neither should affect the EFC as there is a place to report them on FAFSA so they do not impact it (at least there is for the AOC, I’ve never taken the LLC but assume it is the same).</p>

<p>Currently the AOC expires after the 2012 tax year.</p>

3

<p>American Opportunity Credit is the best:

  1. A tax credit of up to $2,500 per your student, and up to $1,000 per year of this amount is refundable.
  2. 100 percent of your student’s first $2,000 in tuition (and books) expenses and 25 percent of the next $2,000.
    See <a href=“Front page | U.S. Department of the Treasury”>Front page | U.S. Department of the Treasury;

<p>I don’t think the tax credits would reduce/increase EFC.</p>

4

<p>I highly recommend tax preparation software such as TurboTax. These programs figure out what is best for you.</p>

5

<p>I would also recommend ordering (or downloading) Publication 970 from irs.gov once the 2012 version is available. It explains all of the different education tax credits and deductions.</p>

6

<p>These credits will impact your EFC, but that’s not a reason to not take them. The FAFSA calculation reduces the income on which EFC is based by the amount of taxes you pay, so the AOC will reduce your taxes by up to $2500, and thus your base income by the same amount. It might increase your EFC by as much as $1200. But that’s OK, you’re getting $2500 back on your taxes. If necessary, take the $2500 and put it directly back to the tuition bills.</p>

<p>Others are correct, in almost all cases, the American Opportunity credit is the best option. Note you cannot take both an education credit and one of the education deductions for the same student at the same time. The AOC (or its predecessor Hope Credit) can be taken no more than 4 times per student, and only as an undergrad - so a 5th year student of grad student should use the LLC or one of the deductions (though these are often not as beneficial).</p>

7

<p>The credits don’t affect the FAFSA EFC. While taxes *are *reduced by the amount of the credit (which increases available income), question 91a asks about any education credits and those credits are then deducted from income in the EFC formula. This decreases available income back to what it was before the education credits, and wipes out any effect on the EFC of taking the credits. (this is for FAFSA - no idea for CSS)</p>

<p><a href=“http://studentaid.ed.gov/sites/default/files/2012-13-completing-the-fafsa.pdf[/url]”>http://studentaid.ed.gov/sites/default/files/2012-13-completing-the-fafsa.pdf&lt;/a&gt; (page 61)</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/082511EFCFormulaGuide1213.pdf&lt;/a&gt; (page 9 line 6)</p>