The spokesperson for the Iowa College Student Aid Commission says many Iowans are not taking advantage of tax breaks that can save money on college expenses. Heather Doe says it’s a nationwide problem.
“What we’re hearing from the federal government, from the U.S. Government Accountability Office — from the last time they took a good look at this —about 14-percent of filers missed taking a claim or deduction that they were probably eligible for,” according to Doe. “One of the biggest ones that we want to point out is the American Opportunity Tax Credit because it’s the broadest range of the tax credits. It’s probably going to help the widest range of people.”
That credit helps you offset some of what you spent on college. “Any out-of-pocket educational expenses that were paid last year — tuition, fees, required course material — it can have a credit of up to 25-hundred dollars per student. And it is the only credit where part of it can be refundable. So, a thousand of that can be refundable if the amount is more than what the tax is owed,” Doe says.
That’s not the only credit that’s available. “There is also a Lifetime Learning Tax Credit. That allows taxpayers to reduce their federal income taxe by up to $2,000 for qualified educational expenses,” Doe says.
“Unlike the American Opportunity Tax Credit, that’s not refundable, but it can be used for all years of post-secondary education as well as courses that are used to improve or acquire some job skills.” You cannot take both the American Opportunity Credit and the Lifetime Learning Credit for the same student in the same year.
There is also a tax deduction for tuition and fees. “That allows you to reduce the income that’s subject to tax by four-thousand dollars for qualified education expenses. That includes tuition, fees and any amounts that are required by the educational institution to cover course-related books supplies and equipment,” Doe says.
She says there’s also a deduction for student loan interest. You can deduct up to $2,500 in interest paid on student loans. Doe says Iowa College Aid recommends you consult with a professional tax advisor or the IRS to determine eligibility for the tax benefits.