Are you a parent committed to helping your kids get through college and minimizing higher education costs as much as possible? Or, have you been asking yourself, is private school tuition tax deductible?
The good news is that it may be possible to lower education costs by using tuition tax breaks. Even if the money comes out of your pocket at first, you might be able to recoup some of those dollars come tax time. There are currently two tuition tax credits for parents to consider: the American Opportunity Tax Credit and the Lifetime Learning Credit.
With each of these programs to make private school tuition tax deductible, the parent needs to claim their student as a dependent on their taxes, as well as meet some pretty specific rules for each program. For parents wanting to take a deep dive into the particulars of tax programs, talking to a licensed tax professional about tax credits and deductions is critical.
Here’s an overview on deducting your child’s tuition from your taxes.
Key Points
• There are two main tax credits for a student’s college education: the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).
• AOTC offers up to $2,500 annually for the first four years of undergraduate education.
• LLC provides up to $2,000 annually, without a limit on the number of years it can be claimed.
• Tax deductions reduce taxable income, while credits reduce the amount of tax owed dollar-for-dollar.
• A borrower cannot file for AOTC and LLC for the same student in the same tax year.
What’s the Difference Between a Tax Deduction and Tax Credit?
For borrowers dealing with student loan debt and wondering, can you write off private school tuition?, it’s important to understand the difference between a tax deduction and a tax credit.
A deduction can reduce the amount of your taxable income. For example, if you made $80,000 in gross income in a given year and had $15,000 in deductions, you’d have $65,000 in taxable income.
A tax credit, on the other hand, can help provide a dollar-for-dollar reduction in income taxes you owe. For example, a $2,000 tax credit would reduce your tax bill by $2,000.
When compared dollar for dollar, tax credits can sometimes be more valuable than a similar tax deduction. A nonrefundable tax credit qualifies a taxpayer for a reduction up to the amount that they owe. With a refundable credit, a taxpayer could receive a refund even if they do not owe any tax.
The American Opportunity Tax Credit
Parents with a child or children they claim as dependents who are in the first four years of their undergraduate education may qualify for the American Opportunity Tax Credit (AOTC).
The AOTC is a credit for tuition and other qualified educational expenses paid for during an eligible student’s initial four years of their college education. The AOTC doesn’t apply to students in their fifth year and beyond.
The AOTC is worth up to $2,500 annually per eligible student. Because it is a tax credit, it should directly reduce the filer’s tax bill — not their taxable income. If the credit happens to bring the filer’s tax bill to zero, they may qualify to have 40% of any remaining amount of the credit (up to $1,000) refunded to them.
To qualify for the AOTC, there are additional requirements for both the parent and the student. According to the IRS, for the student to be eligible for the AOTC, they must be pursuing a degree or other recognized educational credential, be enrolled at least half time for at least one academic period beginning in the tax year, not have claimed the AOTC for more than four tax years, and not have a felony drug conviction at the end of the tax year. Again, the AOTC only applies to undergrad students in their first four years.
To currently qualify as a parent, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less if married filing jointly) in order to claim the full credit. If your modified adjusted gross income is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly), you would be eligible for a reduced credit.
Recommended: Private Student Loans Guide
Lifetime Learning Credit
The Lifetime Learning Credit (LLC) is another possibility for parents paying for school for a child they claim as a dependent.
Like the AOTC, the LLC is a tax credit. The LLC is more expansive in the coursework it covers, which is helpful because college is not for everyone. The LLC credit can be applied to qualified tuition and education expenses for eligible students enrolled in a qualifying educational institution. This includes undergraduate, graduate, and professional schools—including courses to acquire job skills.
In addition, there is no limit on the number of years where a person can claim the LLC, compared to the AOTC’s four years per student. The amount of the LLC is 20% of the first $10,000 of qualified education expenses or a maximum of $2,000 per tax return.
Similar to the AOTC, there is an income limitation to who qualifies for the LLC credit. To claim the full credit in tax year 2024, a parent’s modified adjusted gross income must be below $80,000 (or $160,000 if married filing jointly). If your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly), you could be eligible for a reduced credit.
Parents cannot file for both the LLC and the AOTC for the same student in the same tax year, so it is a choice between one or the other. Also, a student can’t file for either of these if their parents have already filed for a credit for the same expenses.
Recommended: Are Student Loans Tax Deductible?
Other Education-Related Deductions
Parents who have taken out loans for their child’s education and put money toward student loans may also qualify to deduct the interest payments on those loans.
One of the basics of student loans is that borrowers pay interest on the loans. The deduction includes both required and voluntary interest payments.
Filers may be able to deduct up to $2,500 in student loan interest expenses. You do not need to itemize your taxes in order to qualify for the deduction.
Aside from deductions, another way to possibly lower your student loan payments is by refinancing student loans. When you refinance, you replace your current student loans with a new loan.
One of the advantages of refinancing is that you may be able to get a lower interest rate or better terms that could lower your monthly payments. However, be aware that if you refinance federal student loans, they become ineligible for federal protections and programs like income-driven repayment. Also be aware that you may pay more interest over the life of the loan if you refinance with an extended term.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
FAQ
Can I claim my tuition on my taxes if my parents paid?
If your parents claim you as a dependent, then only they can claim your tuition on their tax return. If you are not a dependent of your parents, you can claim the tuition on your own tax form.
How to get $2,500 American Opportunity Credit?
To claim the American Opportunity Tax Credit (AOTC), a student must be in their first four years of undergraduate education. In addition, the student must be pursuing a degree or other educational credential, be enrolled at least half time for at least one academic period beginning in the tax year, not have claimed the AOTC for more than four tax years, and not have a felony drug conviction at the end of the tax year.
For parents to qualify, they must claim the student as a dependent. Also, the parents’ modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less if married filing jointly) in order to claim the full credit. If their MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly), they are eligible for a reduced credit.
Can I get both AOTC and LLC?
No, you cannot get AOTC and LLC for the same student in the same tax year. You will need to decide which credit to claim. Look at the requirements and benefits of each tax credit to determine which is better for your situation.
SoFi Student Loan Refinance
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