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2 Big Tax Breaks Can Easily Cut Your College Costs

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Americans struggling to finance the rising cost of college can get help paying these bills from an unlikely source: the Internal Revenue Service. Let's look at two of the most popular tax credits that apply for educational expenses and who can qualify to take them.

American Opportunity Credit

The American Opportunity Credit -- formerly known as the Hope Credit -- is intended for undergraduate students pursuing a degree program. Under the credit, you can get back 100 percent of your annual qualifying educational expenses up to $2,000, plus an additional 25 percent on the next $2,000 for a maximum total of $2,500. The credit is available for up to four years.

Income limits apply, with single filers making $80,000 or less and joint filers with income of $160,000 or less getting the full benefit. The credit starts to phase out above those levels, and above $90,000 and $180,000 respectively, the credit is no longer available. Families with more than one student in school at the same time can claim a credit for each student.

Qualifying expenses for the credit include tuition, books, supplies, equipment for courses and mandatory student-activity fees. Not included are room, board and other living expenses.

One unusual benefit is that the American Opportunity Credit is partially refundable, meaning that even if you don't owe any income tax before the credit is applied, you can still get money back as a tax refund. Nonrefundable credits, by contrast, only help those who have tax liability; otherwise, they're essentially worthless. The refundable portion of the credit is limited to 40 percent, so you still need to have some tax liability in order to take full advantage of the credit.

Lifetime Learning Credit

The Lifetime Learning Credit is designed to cover students that the American Opportunity Credit doesn't, so you can't claim both in the same year. The Lifetime Learning Credit is just 20 percent of up to $10,000 in eligible expenses.

The Lifetime Learning Credit isn't refundable, which means you need to have tax liability for the credit to offset in order to get the benefit of the provision. Another key difference is that the maximum $2,000 credit is per tax return rather than per student. And the income limits for the Lifetime Learning Credit are lower: $63,000 for single filers and $127,000 for joint filers.

But the main advantage of the Lifetime Learning Credit is evident from its name: it can cover graduate students and non-traditional students who attend classes in a piecemeal manner without necessarily pursuing a specific degree program.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.​

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Wes Bowling

According to DegreesAnywhere.com, a general MBA can be obtained for as little as $6k and as high as $120k. If students would do a little research, they would find that it is not nearly as expensive to get a college degree.

March 22 2014 at 8:42 AM Report abuse rate up rate down Reply
Hi Roz,

want to print all copies of daily finance

March 21 2014 at 1:47 PM Report abuse rate up rate down Reply
przinck

i think we will need to help put doctors get through school without crushing debt or how will we ever fix the heathcare system? If the double billing isn't enough, or charging for services NOT rendered.

March 18 2014 at 1:08 PM Report abuse rate up rate down Reply
weilunion

More corporate apologetic sludge. Want education to be affordable? Universalize it. Just like Denmark where they pay students nine hundred a month to go to school.

This article is Wall St. driven as if taxes and tax breaks could work. See dailycensored.com about college and the criminalization of students and debt. Build a movement for universal free education for those who qualify.

March 18 2014 at 12:49 PM Report abuse +1 rate up rate down Reply
gmgpjandon

A better way would be, get them all part time jobs in the sector of their major.

March 18 2014 at 12:28 PM Report abuse rate up rate down Reply
1 reply to gmgpjandon's comment
quintondall

Unfortunately they are all going to undocumented people or the children thereof...Nice idea though Wish it was reality

March 18 2014 at 12:56 PM Report abuse rate up rate down Reply
quintondall

This is an apology to my 4 boys. Your mom and dad both went to college and then graduate school and bettered themselves to earn a decent living for themselves and the entire family. Unfortunately due the rampant and out of control increase in college/university tuition we will not be able to come up with the half a million dollars to put the 4 of you through college/university. Yes , I know some your friends are going, but they are getting heavily subsidised rates and and tax breaks/credits no longer available to us who loose all these tax breaks and advantages and pretty much pay 80% of the taxes. Sorry

March 18 2014 at 12:10 PM Report abuse rate up rate down Reply
devldog431

The answer is this, now kids! One must go to PRISON!!!!! Yes, prison to cut costs for college. It is FREE!!!!!!!! GREAT JOB OBAMA!!!

March 18 2014 at 10:16 AM Report abuse -1 rate up rate down Reply
roatesny

all you have to do is go to mexico leagaly or themexicans will put you in jail then buy phoney id a mexican consilet card 50bucks US the go to any collage for free get free health care and all the other goodies sionara

March 18 2014 at 8:11 AM Report abuse -1 rate up rate down Reply
gtm1549

It puts a very small dent in a 30 to 40 thousand dollar a year tuition. Something has to be done in a big way

March 18 2014 at 7:56 AM Report abuse rate up rate down Reply
1 reply to gtm1549's comment
weilunion

See Chile at dalycensored.com. Students must organize and teachers as well. Only this will stop the privatization and corporatization of debt and educaton

March 18 2014 at 12:51 PM Report abuse rate up rate down Reply
fmuddywaters

wish I would have had the opertunity do go to collage, jus dink ow mart i wood half bin.

March 18 2014 at 4:36 AM Report abuse rate up rate down Reply