Education Credits and Deductions Under Tax Reform

With the passing of the tax reform, there are lots of questions on what credits and deductions are still available to the taxpayer. There were a few changes and some deductions that will not be extended. We’ve broken it all down for you below.  If you still have questions or want to know how this is going to affect your tax situation please reach out and schedule a consultation with us and we can go over your specific situation in depth.

American Opportunity Tax Credit

The American Opportunity Tax Credit is unchanged. The tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax. Only full-time students in the first four years of post-secondary education are eligible.

Lifetime Learning Credit

The Lifetime Learning Credit is unchanged. The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return. The LLC is not refundable. So, you can use the credit to pay any tax you owe but you won’t receive any of the credit back as a refund. This credit is also available to part-time students and for students beyond a four-year degree.

Tuition and Fees Deduction

The Tuition and Fees Deduction has not been extended. This deduction had expired in 2016 but was extended through 2017. Taxpayers had been allowed to reduce their taxable income by up to $4,000 with this deduction.

Student Loan Interest Deduction

The student loan interest deduction remains unchanged. Student loan interest is interest you paid during the year on a qualified student loan. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

Business Deduction for Work-Related Education

The business deduction for work-related education expenses for employees has been eliminated. Previously this was claimed as an itemized deduction along with other employee business expenses which have all been eliminated.

Scholarships, Fellowships, and Grants

The new tax law did not make changes to the rules for scholarships, fellowships, and grants.