<p>When doing my taxes , I saw that there were a number of different ways to handle college costs - deductions, credits ? The tax tool that I was using , taxact, almost seemed to say it was up to me which one I used. i don't know.</p>
<p>there is the hope credit, american opportunity something, The Lifetime Learning Credit. isn't there a deduction - The Tuition and Fees Deduction, College Tuition Tax Deduction vs credit also?</p>
<p>You are allowed to choose the benefit that is most beneficial for you. In most cases the AO is probably going to be the best as it is an actual tax credit of up to $2500 (based on 100% of the 1st $2000 qualified expenses and 25% of the next $2000). Plus part of it is refundable.</p>
<p>The Hope is not an option - it was replaced by the American Opportunity. Lifetime credit is 20% of the first $10,000 so a max of $2000 credit. None is refundable. The deduction reduces you taxable income by up to $4,000 which is not as good as a tax credit unless your tax rate is huge, in whaich case you probably would not qualify).</p>
<p>Work it out all ways and see what is best for you.</p>
<p>ok, thanks for the perspectives. I looked at my latest tax form , and it looks like the tool chose AO and I only received a $1,000 credit from AO. That, of course, is better than a poke in the eye with a sharp stick, but please replay again how one can get the full 2,500 credit?</p>
<p>also, what does it mean to be ‘refundable’?</p>
<p>For me, the tool generated $1,000 for line 43, AO credit amt. If the max amt that can be refunded is $1,000, then why even say that it goes up to $2,500?</p>
<p>I got the full $2500. The 1st $1500 was put on line 31 of my 1040A, and reduced my tax. The 2nd part of $1000 was placed on line 43, as it was refundable and treated as a payment.</p>
You are misunderstanding the meaning of refundable and non refundable tax credits.</p>
<p>A non refundable tax credit reduces your tax liability, but if you have not tax liability you get no money. A refundable credit means you can get money back even if you didn’t have any tax liability. It sounds like you have no tax liability? If so you can not get any of the non refundable credit. But you can get the refundable credit of $1000 because you do not need to have paid any tax to get that.</p>
<p>The AO is partially refundable. Up to $1000 is refundable. The other $1500 is not refundable. So, assuming you have $4000 in qualified expenses, if you have $1500 (or more) tax liability you can get the full $1500 non refundable credit plus the $1000 refundable. If your tax liability is less than $1500 then you can only get up to the amount of the tax liability for the nonrefundable part of the credit, plus the refundable credit.</p>
<p>For instance if your tax liability is $700 then you can get $700 of the $1500 non refundable credit (you can’t get the other $800). Then you you can get $1000 refundable credit on top. If you have no tax liability you can not get any of the non refundable credit. Only the refundable.</p>
<p>Many tax credits are non refundable. Few are refundable.</p>
<p>thanks for explanation. my line 31 was blank (presumably zero). But I have no tax liability, so I 'd end up with the 1,000 on line 43 anyway from the explanation here.</p>
<p>Yes, that is correct. You cannot get any of the non refundable part of the credit if you have no tax liability. But you can get the refundable part of up to $1000 (you have to have the full $4000 in qualified expenses to get the full $1000 as the credit is split between refundable/nonrefundable).</p>
<p>Non of the other education tax credits are refundable.</p>
<p>OK, thanks again. To reiterate: if a zero tax liability, and you can have the full $4k in qualified expenses, then the max credit is $1k.</p>
<p>I just noticed there is a line 31, ‘educational credits’. My tax form is showing blank or zero there. Are lines 31 and line 43 mutually exclusive?</p>
<p>Line 31 on the 1040a is for the nonrefundable part of the credit - the part that reduces the tax liability. (it is also where other education credits such as the lifetime learning - which is all non refundable would appear).</p>
<p>Line 43 is the refundable part of the AO credit.</p>
<p>Someone with a tax liability that was eligible for the non refundable part of the credit would have an amount in line 31 and also an amount in line 43. </p>
<p>The majority of tax credits are non refundable and therefore only reduce a persons tax liability. Therefore most tax credits will appear on the tax return after the tax line (28 - which is where your tax liability based on your taxable income is reported) and before the total tax line (line 37).</p>
<p>Refundable tax credits appear after the total tax line because you can get them even when you have no tax liability. The tax return effectively treats the refundable tax credits as if you had actually already paid this amount in taxes and they are therefore being refunded to you.</p>
<p>But for Someone without a tax liability that was eligible for the non refundable part of the credit…</p>
<p>would NOT have an amount in line 31 ?</p>
<p>THat is, does it seem ok to not have an amt on 31 and a $1k on line 43 (for someone w/o tax liability and who would take the full $1k refundable credit)?</p>
<p>Only someone with an initial tax liability on line 28 can have anything on line 31. The tax credits on lines 29 through 33 are all non refundable tax credits. Non refundable tax credits can only reduce your tax liability. If you have no tax liability you cannot get one of the “non refundable” tax credits that only reduce your tax liability. If your tax liability is $0 then the maximum non refundable tax credit you can get is $0. If your tax liability is $50 then the maximum non refundable credit you can get is $50. All a non refundable tax credit can do is reduce your tax liability.</p>
<p>As explained previously a refundable tax credit is one you can get when you have no tax liability. Very few tax credits are refundable. The AOC os 40% refundable and 60% not refundable. </p>
<p>A person with a tax liability can get the 40% refundable part (up to $1000 on line 43) and also the 60% non refundable part (up to $1500 on line 31). </p>
<p>A person with no tax liability can get the 40% refundable part (up to $1000 on line 43) but can not get any of the 60% non refundable part ($0 on line 31).</p>
<p>In your case you have no tax liability - you cannot get any money from a non refundable tax credit.</p>
<p>So I would expect your return to show:
Line 31 $0
line 43 up to $1000</p>