By: Revanche

Education Tax Benefits!

December 28, 2009

It’s the end of December, which means tax preparation time! Well, prepping for tax prep, anyway.  I like to start pulling together my records early in December to make sure things are all set for this tax year.

This is the first year since 2004 that I can claim Education Credits because I took a couple classes this last quarter.  I should also be able to claim the money paid towards next quarter’s tuition since that’ll be paid before December 31st. 

The usual two choices are the Hope and Lifetime Learning Credits.  This and next year, however, a new player is in town: The American opportunity tax credit (AOC), a modification of the Hope Credit.

Here’s a quick comparison of the credits:

AOC, a modification of the Hope credit:

  — The maximum amount of the AOC is $2,500 per student. The credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return).    Exception. For 2009, if you claim a Hope credit for a student who attended a school in a Midwestern disaster area, you can choose to figure the amount of the credit using the previous rules. However, you must use the previous rules in figuring the credit for all students for which you claim the credit.

  — The credit can be claimed for the first four years of post-secondary education. Previously the credit could be claimed for only the first two years of post-secondary education.

  — Generally, 40% of the AOC is now a refundable credit for most taxpayers, which means that you can receive up to $1,000 even if you owe no taxes.

  — The term “qualified tuition and related expenses” has been expanded to include expenditures for “course materials.” For this purpose, the term “course materials” means books, supplies, and equipment needed for a course of study whether or not the materials must be purchased from the educational institution as a condition of enrollment or attendance.

After all is said and done, the Lifetime Learning Credit remains my best friend.  This gives a 20% of the first $10,000 of qualified education expenses you paid.  Quick calculations say that I’m looking at a credit between $400 and $500.  Of course, these are just rough numbers right now — there’s still a lot of income crunching to be done before I’m ready to file my tax returns for 2009.


The last Carnival of Personal Finance for 2009 is up at Gather Little By Little.  Mike included my update on investing.  

One Response to “Education Tax Benefits!”

  1. That’s interesting. Handy comparison: I sent it along to my son, who would dearly like to quit his job and go to graduate school.

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