What you need to know about college tax deductions and credits
Q. We paid college tuition from loans and 529 plan savings. What deductions can we take?
— Prepping tax return
A. It’s a great question. There are several possibilities for tax savings when you’re paying college tuition bills, but not everyone qualifies.
When you take funds out of a tax-advantaged 529 plan for college, you can’t “double dip”and use college tax breaks for those funds.
But because you also used loans, you may be in luck.
“The part of the tuition paid for from the proceeds of a student loan may be deductible up to $4,000,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.
He said the deduction starts to phase out for married taxpayers when your adjusted gross income reaches $130,000 ($65,000 for single filers) and is completely eliminated when your adjusted gross income reaches $160,000 ($80,000 for single filers).
You may also qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.
Hook said both of these credits also contain phase-outs when income begins to exceed a certain amount.
Of the three, any would be available for your full-time college student, but you can’t use them all.
“However, only one can be used in a given year and if your income is too high could result in none being available on your tax return,” Hook said.
Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.