If you pay tuition, fees, and other costs for attendance at an eligible educational institution for yourself, your spouse, or your dependent, you may be able to take advantage of one or more of the education tax benefits.
You can claim more than one education benefit in a tax year as long as you do not use the same expenses for more than one benefit.
Exception: Qualified expenses used to claim education benefits can also be used to eliminate the 10% penalty on premature IRA distributions.
For each student, you can elect for any year only one of the credits. For example, if you elect to claim the American Opportunity Credit for the student in 2019, you cannot use that same student’s qualified education expenses to figure the Lifetime Learning Credit for 2019.
• Student loan interest deduction up to $2,500 from gross income. Income limitations apply.
• Business deduction on Schedule C or F. You can deduct the cost of education related to the business or farm activity.
Education Tax Credit
• American Opportunity Credit, $2,500 maximum per student per year.
• Lifetime Learning Credit, $2,000 maximum per tax return per year.
Penalty-Free IRA Distributions
• The 10% penalty does not apply to traditional IRA or Roth IRA withdrawals, if you use the money to pay qualified education expenses for yourself, spouse, or for any child or grandchild of yourself or your spouse.
• Reduce qualified expenses by scholarships and other tax-free assistance the student receives, but not by gifts or inheritances.
Education Savings Plans
• Qualified Tuition Programs (QTPs). States sponsor QTPs to allow prepayment of a student’s qualified higher education expenses. For information on a specific QTP, you need to contact the state agency or eligible educational institution that established and maintains it. Effective January 1, 2018, 529 Plans may distribute not more than $10,000 in expenses for tuition during the taxable year for a public, private, or religious elementary or secondary school. Distributions in excess of $10,000 are subject to tax. This limitation applies on a per-student basis, rather than a peraccount basis. Note: QTPs are also called 529 Plans because they are authorized under section 529 of the Internal Revenue Code.
• Coverdell Education Savings Accounts (ESAs). A Coverdell ESA can be used to pay a student’s eligible K-12 expenses, as well as higher education expenses. Coverdell ESA contributions are limited to $2,000 total per year for each beneficiary, no matter how many accounts have been established or how many people are contributing. Unless the beneficiary is a person with special needs, contributions to a Coverdell ESA must stop before the beneficiary reaches age 18 and the account balance must be distributed within 30 days after the beneficiary reaches age 30 (or dies, if earlier).
Exclusion From Gross Income
• You may exclude the part of scholarships, fellowships, and grants that you use for qualifying education expenses while you are a degree candidate.
• You may exclude up to $5,250 paid for you under a qualifying educational assistance plan. Additional amounts are included in your W-2 income, unless they are a working condition fringe benefit. A working condition fringe benefit is an amount that you could have deducted as an employee business expense, had you paid for it instead of your employer.
• If you cash in qualified U.S. Savings Bonds to pay for eligible education expenses for yourself, spouse, or your dependent, you may exclude the bond interest from income. Income limitations apply.
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