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Sunday, March 4, 2012

What Educational Expenses Qualify for Federal Educational Tax Credits?

 By JC Leahy,  MA, Accounting
Twitter@TaxHelpWhenNeed

There are 2 educational Federal tax credits currently available: They are the American Opportunities Credit and the Lifetime Learning Credit.  The Hope Credit, which was established along with the Lifetime Learning Credit in 1997, has morphed into the American Opportunities Credit for tax years from 2009 through 2012.  So, currently there are two educational credits.

Both educational credits are based on what they call "qualified educational expenses."  The tricky thing is that different educational expenses "qualify" depending on which credit you choose.

The American Opportunity Credit  is a maximum of $2,500 per student.  Qualified expenses only include the first four years of post-high school study in a program of study leading to a college degree -- NOT graduate study or any other study beyond 4 years of college study.  Tuition is a qualified education expense, of course. Additionally,   books, supplies and equipment are also qualified expenses if the student needs them for his particular course of study.   Room, board, insurance, medical fees, transportation, and non-academic fees are not qualified expenses for the American Opportunity Credit.

The Lifetime Learning Credit is up to $2,000 per return.  Graduate and postgraduate studies qualify, as well as vocational study expenses Obviously, tuition is a qualified expense.  Books, supplies and equipment are NOT qualified expenses unless the student had to purchase them directly from the college as a condition for enrollment or attendance.  Room, board, insurance, medical fees, transportation, and non-academic fees are not qualified expenses for the Lifetime Learning Credit.

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