At the end of 2009, the current deduction for Education and Fees – post-secondary education, for enrollment at an accredited college, university or other eligible institution – will expire.
Under today’s rules, taxpayers may deduct up to $4,000 of the cost of tuition and fees at those eligible institutions, but beginning next year this deduction will no longer be allowed (as long as the tax law doesn’t change between now and the end of the year). This deduction phases out to a maximum of $2,000 if the MAGI is greater than $130,000 for married couples filing jointly ($65,000 for singles). The deduction completely phases out for if the taxpayer’s MAGI is greater than $160,000 for couples and $80,000 for singles.
What this means is that families with college students (of any age) will be relegated to using either the Lifetime Learning credit or the new American Opportunity credit.
Briefly, the American Opportunity credit is for students in the first four years of post-secondary education (as determined by the institution, primarily by number of credits earned). The credit is equal to 100% of the first $2,000 of qualified expenses, and 25% of the next $2,000 of expenses. This credit is refundable up to 25% of qualified expenses, or $1,000.
The Lifetime Learning credit is equal to 20% of the first $10,000 of qualified expenses, but is not limited to the first two years of school. This credit is also not refundable.
For the Lifetime Learning credit, phaseout begins at $96,000 and is completely phased out at $116,000 of MAGI (for marrieds). For singles, the phaseout is between $48,000 and $58,000. For the American Opportunity credit, phaseout begins at $80,000 for singles and $160,000 for married folks filing a joint return.
You’ll want to keep this in mind as you plan your 2010 taxes and how to pay for junior’s college next semester, because it just got more expensive…
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry. . Read more from this author
My understanding of the current tax deductions for tuition is that it is only available to student enrolled in a degree-awarding program. Do you have any suggestions for folks who are going back to school for a class or two at the local college? There ought to be some help for folks who are trying to improve or broaden their skillset.
In my understanding, the tuition and fees deduction is available for any eligible student taking at least one course or more at an eligible institution. The Lifetime Learning credit must either be part of a degree program or taken by the student to improve job skills, but is also for the student taking one or more courses at an eligible institution. The Hope credit is only available to students in the first two academic years, and the student must be enrolled at least half-time (half of the institution’s definition of full-time) at an eligible institution.
Perhaps I’m reading something wrong – I just double-checked that with Pub 970 – or is there somewhere else that you’re reading about the restrictions?