Educational Tax Benefits

The American opportunity tax credit

The tax credit is temporary for 2010.  The credit increases the Hope credit from a maximum of $1,800 per year to $2,500 per year and extends the credit availability from the first 2 years of education to 4 years.  The credit is also now 40% refundable.  The credit phases out beginning at $80,000 for singles and $160,000 for joint filers.  Expenses allowable will now include course materials such as textbooks to the definition of qualified tuition eligible for the credit.

Student Loan Interest Deductions

Taxpayers are permitted to deduct up to $2,500 in student loan interest as an adjustment for gross income (meaning you do not have to itemized deductions to obtain the deduction).  The interest deduction begins to phase out at $55,000 on a single return and $110,000 on a joint return.

529 Plans

529 plans are Qualified Tuitiion Programs that are either prepaid programs or savings programs.  The Scholarshare College Savings Plan is California's 529 plan.  It allows an individual to use the full value of the account at most accredited colleges or universities and vocational technical schools in the country to pay for the students qualified educational expenses.

Investments in a 529 plan grow tax deferred.  A maximum of $300,000 may be contributed per beneficiary.  The donor does not receive a tax deduction for the contribution to a 529 plan.  Withdrawals from a 529 plan are not taxed as long as they are used to pay for qualified educational expenses.