As families prepare to send their students off to college, I
tend to get a lot of questions about tax breaks for paying college
expenses. Here's what you need to know.
Can I get a tax break for paying my son's college
Maybe. Money paid for tuition, fees, books and other required
course materials for the first four years of college may qualify
for the American Opportunity Credit, which can shave up to $2,500
from your tax bill. To claim the full credit, you must pay at least
$4,000 in qualified expenses -- the credit covers 100% of the first
$2,000 of expenses, and 25% of the next $2,000.
To qualify for the tax break, you must claim your son as a
dependent on your tax return and your adjusted gross income must be
less than $90,000 if you are single or $180,000 if you are married
filing jointly (the amount of the credit starts to phase out if you
earn more than $80,000 if single or $160,000 if married filing
For more information, see the IRS's
American Opportunity Credit: Questions and
Can I claim the American Opportunity Credit for graduate
No, you can claim the credit only for the first four years of
college. But grad school expenses may qualify for the lifetime
learning credit, which can be worth up to $2,000 per tax return. To
qualify for the full credit, you must pay at least $10,000 for
tuition and other eligible expenses, and your adjusted gross income
must be less than $50,000 if single or $100,000 if married filing
jointly. The credit phases out entirely if you earn more than
$60,000 if single or $120,000 if married filing jointly.
The lifetime learning credit has much broader eligibility
requirements than the American Opportunity Credit: For example, you
don't need to be pursuing a degree to qualify, and you don't need
to be enrolled at least half-time as you do to claim the more
generous American Opportunity Credit. To qualify for the Lifetime
Learning Credit, you must take classes at an eligible educational
institution, which includes any college, university, vocational
school or other postsecondary educational institution. (Expenses
incurred at many foreign schools that participate in the U.S.
Department of Education's student aid program are eligible, too.)
There is no limit to the number of years that you claim a Lifetime
Learning Credit; however, you can't claim it in the same year you
claim the American Opportunity Credit for the same student.
Which expenses qualify for tax-free use of 529 funds?
You can use money from a 529 college-savings account tax-free to
pay for tuition, fees, books, supplies and required equipment. You
can also use the money tax-free for room and board, as long as your
child is at least a half-time student. The full cost of room and
board counts if the housing is owned or operated by the college.
Off-campus housing costs may qualify, too, up to the room and board
allowance that the college includes in its cost of attendance for
federal financial-aid purposes (your college financial-aid office
can give you that figure).
Can I use 529 money to pay college bills and still qualify for
the American Opportunity Credit?
You can take advantage of both tax breaks if you carefully plan
how to spend the money. For example, if you pay at least $4,000 of
tuition and other eligible expenses from funds other than from a
529 account, you may claim the American Opportunity Credit
(assuming you meet the income-eligibility requirements). Then you
can use 529 money tax-free for remaining expenses, including room
For more information about tax breaks for college expenses, see
IRS Publication 970
Tax Benefits for Education
and the IRS's
Tax Benefits for Education Information Center