What it is:
How it works/Example:
Currently, there are three major education credits in the United States (amounts subject to change by the IRS).
1. The American Opportunity allows for up to $2,500 in per student.
2. The Hope Credit allowed for up to $3,600 per student, but this program ended in 2009.
3. The Lifetime Learning Credit allows for a $2,000 tax credit for undergraduate, graduate, and professional study per student per .
Taxpayers can also get tax deductions for contributing to 529 plans (which help save for college) and paying tuition and fees (if the taxpayer doesn't qualify for the learning above). Additionally, withdrawals from IRAs and other vehicles are permitted without penalty if they are for qualified higher education expenses.
Why it matters:
Education credits can help tax liability; a is a reduction in the amount of subject to tax (and thus is "worth" less than a tax credit).
It is also important to note that most taxpayers cannot claim more than one education credit in the same , which reduces their value.
It is important to note that the expenses must come from an eligible educational institution: that is, one that is eligible to participate in a student financial aid program under Title IV of the Higher Education Act of 1965. (Most colleges, universities, and community colleges are eligible.)