Going to school and repaying your student loans can be expensive. But did you know that there are ways you can get money back? It might sound too good to be true, but there are education tax credits and deductions that can make higher education more affordable.
Here are three credits and deductions you may qualify to receive.
If you’re still in school, you might be able to qualify for the AOTC. The AOTC is a tax credit, meaning it’s subtracted from your tax liability rather than your taxable income. For example, if you have find out that you owe the IRS $1,000 at tax time, a tax credit can help reduce that amount.
With the AOTC, you can get up to $2,500 per year. Even better, the credit is refundable. That means if your tax bill is smaller than the tax credit, the remaining balance is refunded to you. If you had a $1,000 tax bill and qualified for the full AOTC credit, you’d get $1,500 back.
To be eligible for AOTC, you must meet the following criteria:
Unlike the AOTC, which can only be claimed for four years of undergraduate expenses, you can claim the Lifetime Learning Credit (LLC) for undergraduate, graduate, and professional degree courses. There is no limit on how long you can claim the LLC, and it’s worth up to $2,000 per year.
To qualify for the LLC:
Like the AOTC, your school will send you a form detailing how much you paid in tuition. You’ll use that information to complete Form 8863, which you have to attach to your personal tax return.
If you have already graduated and are repaying your student loans, you’re not eligible for AOTC or the LLC. However, you can still qualify for a tax deduction thanks to the interest you’ve paid on your loans.
Unlike credits, which reduce your tax liability, deductions affect your taxable income. With the student loan interest deduction, you can deduct up to $2,500 that you paid in interest on your loans from your taxes.
Best of all, both federal and private student loans qualify for the deduction. Even if you refinance your student loans, you are still eligible for it, so you get the benefits of refinancing—such as a lower interest rate or smaller monthly payment—without sacrificing the deduction.
And it’s an above-the-line deduction, which means you can claim it even if you don’t itemize your deductions.
You can claim the deduction if you meet the following criteria:
Your student loan servicer will send you Form 1098-E, which shows how much interest you paid on your student loans. You’ll enter this information on the deduction section of your personal tax return.
Claiming all of the credits and deductions you qualify for is a smart way to reduce your tax bill and save money. Since you’re working hard to finish your degree or to pay off your loans, it makes sense to claim every dollar to which you’re entitled.
Make sure you hold on to all of the required forms so you can claim the tax credits or deductions. By staying organized and filing your return on time, you can help offset your education expenses or student loan repayment costs.