Tax Benefits for Higher Education
The Federal Relief Act of 1997 may provide opportunities for tax savings through the Hope Credit or the Lifetime Learning Credit. The following is a brief description of the credits (obtained from the Internal Revenue Service) summarizing these credits and other deductions and college savings plans. Please consult with a tax professional to discuss your personal situation and any changes or revisions to the tax law.
The Hope Credit and The Lifetime Learning Credit
The Hope Credit is a tax credit of up to $1,800 for qualified expenses available to students for the first two years of post-secondary study. The student must be enrolled in at least one post-secondary course at an eligible institution. The Lifetime Learning Credit is available for students who have completed the first two years of postsecondary education. The amount of the credit is 100% of the first $1,200 out-of-pocket payments for tuition and required fees (does not include room and board, books, or any other related educational expenses) . The maximum credit is $1,200 per family.
Student Loan Interest Deduction
Taxpayers who have taken loans to finance an education at an eligible institution (definition above) may be qualified to deduct interest they pay on loans for themselves, spouse or their dependent.
| Year |
Maximum Deduction |
| 1998 |
$1,000 |
| 1999 |
$1,500 |
| 2000 |
$2,000 |
| 2001 and after |
$2,500 |
Beginning January 1, 1998, the deduction can only be used on any payment made during the first 60 months that interest payments are required on the loan. The student must be enrolled at least halftime in an eligible institution. Expenses that are eligible for the deduction include tuition, fees, books, room and board, supplies, and other related educational expenses. The amount of the deduction is gradually reduced for taxpayers with a modified adjusted gross income between $55,000 and $70,000 (between $115,000 and $145,000 for married taxpayers filing jointly). Taxpayers who have a modified adjusted gross income above $70,000 ($145,000 for married taxpayers filing jointly) cannot claim the student loan interest deduction. If a student is claimed as a dependent on another taxpayer's return or if his/her filing status is married filing separately, he/she cannot claim the deduction during that tax year.
Please see IRS Publication 970 for more details about these credits.