Major life changes, including divorce, often prompt people to return to school to gain marketable job skills, pursue a new or unfinished degree or certificate program, or explore a different career path. If that describes you, bravo! Additionally, navigating how to pay for college for your children after your divorce can be tricky. Either way, you may be wondering how to offset the cost of tuition, fees and course materials to make higher education more affordable.
Legislation in 2020 altered the tax deduction and tax credit landscape. Here are three opportunities undergraduate and graduate students need to know for the 2021 tax year.
- The American Opportunity Credit has been permanently extended thanks to a Congressional budget deal. It represents the biggest student tax credit currently available.
- To be eligible, undergraduate students must be enrolled at least half time in a credentialed program (degree or certificate) at an accredited school.
- It can be claimed for a total of four years of higher education (instead of two years under the former Hope Credit).
- It covers up to $2,500 in tuition, fees and course materials paid during the taxable year for students who earn $80,000 or less in modified adjusted gross income.
- In 2020, Congress repealed tuition and fee deductions, effective in 2021. Instead, the legislation increased the allowed maximum income level for the Lifetime Learning Credit. The Lifetime Learning Credit is similar to the American Opportunity Credit, with a few key differences:
- A student does not need to be pursuing a degree to apply.
- In addition to undergraduate classes, the Lifetime Learning Credit may be applied to graduate and professional education courses, including coursework to hone job skills.
- It may be claimed for an unrestricted number of tax years.
- The annual maximum credit is lower, capped at $2000 per tax year.
- It is not refundable if a student owes $0 in taxes for the year, unlike the American Opportunity Credit.
- You may qualify for a student loan interest deduction. Students may deduct up to $2,500 in interest on qualified student loans per tax year. The student’s individual adjusted gross income must be under $85,000 annually and the student cannot be claimed as a dependent on someone else’s tax return. The student may take this deduction on their tax form whether they itemize their taxes or not.
Always consult your tax advisor and/or accountant for specifics on deductions related to higher education. This blog is not to be considered tax advice.
Questions about interpreting your Parenting Plan as it relates to paying for college? Contact Jones Family Law Group, LLC today for any questions or to set up a consultation.