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Tax Breaks for Students and Parents
Among these breaks,
which take effect this year (1998) are two new credits for the "qualified
tuition and related expenses" of higher education which may allow
you tax savings.
You can elect
the HOPE tax credit of up to $1,500 per student per year
for tuition and fees incurred during the first two years of post-secondary
education. The credit reduces your tax on a dollar-for-dollar
basis, but it is not refundable. The credit equals 100% of the
first $1,000 of tuition and fees that you pay and 50% of the next
$1,000, for a maximum credit of $1,500. It is available for only
two years per student, and only for the first two years of post-secondary
education. The student must carry at least one-half the normal
course load for one term and not be convicted of a federal or
state drug felony. Or you may elect a non-fundable LIFETIME
tax credit of 20% of up to $5,000 of tuition and fees, for a maximum
total credit of $1,000. The credit is available for expenses paid
after June 30, 1998. Starting in 2003, the maximum amount of expenses
that will qualify for the credit will increase from $5,000 to
$10,000 or maximum tax credit of $2,000. This credit is available
for undergraduate, graduate, or professional courses at an eligible
education institution. There's no requirement that the student
attend classes at least halftime. The credit is explicitly made
available for courses at an eligible institution to acquire or
improve job skills. The credit isn't allowed for an amount that's
otherwise deductible.
The HOPE
and LIFETIME credit may not be claimed in the same tax
year for the same expenses but may be claimed for different expenses.
There are some limitations on the expenses and the credit phases-out
for joint returns between $80,000 and $100,000 and for other returns
between $40,000 and $50,000 except married filing separate.
Deduction
for Interest on Education Loans:
Interest on qualified education loans applies to interest due
and paid after 1997 on loans taken out on, before, or after (reasonable
period of time) August 5, 1997. The maximum amount of interest
you can deduct is $1,000 in 1998, $1,500 in 1999, $2,000 in 2,000,
and $2,500 in 2001 or later. Only interest paid during the first
60 months that payments are required can qualify. Months in which
payments aren't required, e.g., during the deferral period, aren't
counted against the 60-month period. This deduction is phased
out for joint returns between $60,000 and $75,000 and for other
returns between $40,000 and $55,000. Married taxpayers must file
jointly or no deduction is allowed. This deduction is taken above
the line; e.g., it is subtracted from gross income. Thus, it's
enjoyed even if you don't itemize deductions.
Be sure to
consult with a tax advisor for proper planning and implementation
of tax savings ideas to be sure they are right for you.
C.
David Pitzer, CPA, PC
118
Two Mile Pike
Goodlettsville, TN 37072
(615) 851-2727
Fax: (615) 851-8711
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