Can tuition deductions affect your AGI?

rockvillemom
Tue, 01 Jan 2013 19:38:43 +0000

The American Opportunity Tax Credit is just that - a $2500 tax credit. It does not impact your adjusted gross income(AGI). The maximum credit is $2500 per eligible student per year, as long as you have paid enough in qualified expenses. It MAY impact your financial aid as it reduces your Federal income taxes owed.

American Opportunity Tax Credit: Questions and Answers
Q1. Have there been any changes in the past few years to the tax credits for college expenses?
A. Yes. The American opportunity tax credit, which expanded and renamed the already-existing Hope scholarship credit, can be claimed for expenses paid for tuition, certain fees and course materials for higher education in 2009, 2010, 2011 and 2012.

Q2. The Hope scholarship credit originally applied only to the first two years of college. Has that changed?
A. Yes. The American opportunity tax credit can be claimed for expenses for the first four years of post-secondary education.

Q3. How does the American opportunity tax credit differ from the Hope scholarship credit and Lifetime Learning credit?
A. Unlike the other education tax credits, the American opportunity tax credit includes expenses for course-related books, supplies and equipment that are not necessarily paid to the educational institution. It also differs from the Hope scholarship credit because it allows the credit to be claimed for four years of post-secondary education instead of two.

Q4. How much is the American opportunity tax credit worth?
A. It is a tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax.

Q5. What are qualified expenses for purposes of the education tax credits?
A. In general, qualified expenses for the education tax credits include tuition and required fees for the enrollment or attendance at an eligible post-secondary educational institution. To be creditable, the expenses paid during a taxable year must relate to: (1) an academic period that begins in the same taxable year; or (2) an academic period that begins in the first three months of the following taxable year. See Publication 970, Tax Benefits for Education.
The following expenses do not qualify:
Room and board.
Transportation.
Insurance.
Medical expenses.
Student fees unless required as a condition of enrollment or attendance.
Same expenses paid with tax-free educational assistance.
Same expenses used for any other tax deduction, credit or educational benefit.

This quote is from financial aid guru swimcatsmom, in a 2010 thread about education tac credits and how they impact your EzfC:



The point of reporting the education credits on FAFSA is so that you are not penalized for having taken them. Taxes are used as an allowance against income so reduce available income in the EFC formula. By reducing your taxes with the credit you are increasing the income available for the EFC. Which has a negative effect on the EFC. So FAFSA has you report the education credit and takes uses it as an allowance against income in the EFC formula just as if you never took the credit in the first place.