Credits and Deductions for College Expenses

For those of you who have college expenses for yourself or your dependents, here are the changes and options available for 2010 returns.

  • The Hope Credit does NOT exist anymore
  • The American Opportunity Credit DOES exist.  The credit is available for students in the first 4 years of college who are pursuing a degree or other educational credential.  Tuition and enrollment fees are considered qualifying expenses, as well as textbooks.  The credit is $2,500 per student per year, and up to 40% of the credit is refundable.
  • The Lifetime Learning credit is still available for 2010 returns.  This credit is available to anyone who takes a college level course, whether the person is pursuing a degree or not.  Tuition and enrollment fees are qualifying expenses, but textbook purchases are NOT qualifying expenses unless you are required to purchase the textbook from the school.  The credit is not refundable, and is limited to $2,000 per return.
  • The front-side deduction for college expenses was renewed in the tax bill passed by Congress in December.  Generally, the same expenses that qualify for the Lifetime Learning Credit qualify for the front-side deduction.  Usually, a tax credit is better than a deduction, but not always.  For example, if you have a low amount of taxable income, you may get a bigger tax benefit from a deduction than from a credit because the Lifetime Learning Credit is not refundable, and the American Opportunity Credit is only partially refundable.
  • Deduction for college loan interest:  a front-side deduction is available to taxpayers for interest paid on college loans.  The maximum deduction is $2,500.