What is the difference between tax credits and tax deductions?

Tax credits decrease your tax liability, which is the amount of tax you owe. Tax deductions decrease your taxable income, which is the amount of your income that is subject to taxation.

What kinds of tax credits are available for higher education?

• The Hope Credit
• The Lifetime Learning Credit

NOTE: Eligible taxpayers can choose one of the two (not both).

What is the Hope Credit?

The Hope Credit is a credit of up to $2,500 for the first $4,000 spent on qualified education expenses each year. Qualified education expenses include tuition and many other education-related expenses. The Hope Credit is available for the first 4 years of post-secondary education. The student must be enrolled at least half-time working toward an undergraduate degree during this time.

What is the Lifetime Learning Credit?

The Lifetime Learning Credit is a credit of up to $2,000 for the first $10,000 spent on qualified education expenses each year. Qualified education expenses include tuition and many other education-related expenses. The Lifetime Learning Credit is available for all years of post-secondary education. The student must be enrolled in at least one course at any qualified educational institution.

What kinds of tax deductions are available for higher education?

• The Tuition and Fees Deduction
• The Student Loan Interest Deduction

What is the Tuition and Fees Deduction?

The Tuition and Fees Deduction is a deduction of up to $4,000 for qualified tuition and fees paid during the year. This deduction is not available if anyone claims the Hope Credit or the Lifetime Learning Credit for the same student.

What is the Student Loan Interest Deduction?

The Student Loan Interest Deduction is a deduction of up to $2,500 for student loan interest paid during the year. This deduction is available in addition to the other deductions and credits.

The IRS website regarding the Hope and Lifetime Learning Credit and IRS Publication 970 Tax Benefits for Education contain additional information about higher education tax incentives, including Coverdell Education Savings Accounts and Qualified Tuition Programs.

Tax laws change frequently. The information contained on this page is current law as of June 9, 2009. Please contact your tax advisor or preparer for information about your specific tax situation.