12. I have a child in college. What tax breaks might be available to me?

For tax year 2008 you may claim a deduction of up to $4,000 for tuition and fees, as long as your income is less than $65,000 for single taxpayers, or $130,000 for married taxpayers. For single taxpayers with income between $65,000 and $80,000, or for married taxpayers with income between $130,000 and $160,000 a $2,000 deduction is available. This deduction is allowed even if you do not itemize.

If it is necessary for you to withdraw funds from your IRA to help pay for your child’s post secondary education, you will not be subject to the 10% penalty for early withdrawal.

You may be able to deduct up to $2,500 of interest on qualified education loans as an adjustment to income (therefore available even if you do not itemize). The ability to claim the deduction phases out for single taxpayers with an income over $55,000, and for married taxpayers with income over $115,000. Additional requirements that must be met to qualify for deductions of the interest include:
 

• The student must have been enrolled on at least a half time basis.
• The deduction can only be claimed by the individual who has the primary obligation to repay the loan. Therefore, if the loan was taken out by your child in his/her name, only the child can claim the interest deduction.
• The deduction is not available to any taxpayer who is claimed as a dependent on another person’s return.

There are two tax credits available regarding the costs of post-secondary education. In both cases, the credit may be claimed only on the tax return where the student is claimed as a dependent. The availability of both credits phase out as income exceeds $48,000 for a single taxpayers and $96,000 for a joint return. 

The Hope Credit is equal to 100% of the first $1,200 and 50% of the second $1,200 spent in the year for tuition and fees of a student enrolled on at least a 1/2 time basis in the first two years of a degree program. The maximum credit is $1,800 in a year, and may only be claimed in two tax years.

The Life Time Learning Credit is equal to 20% of the first $10,000 of qualified tuition and fees paid during the year for post-secondary education. There is no limit on the number of years the credit may be claimed.

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