Educational Tax Benefits

Hope and Lifetime Learning Credits

The Hope credit allowable for 2007 at the rate of 100% of the first $1,100 of tuition and 50% of the next $1,100 of tuition paid.  This credit is only available for the first two years of post secondary education for an eligible student (a student enrolled at least half time in and undergraduate degree program).  Only qualified educational expenses qualify.  Books, supplies and equipment are generally not included, nor are expenses allowed for insurance, health fees, room and board or transportation.

Lifetime Learning credits are allowable for 2007 at the rate of 20% of the first $10,000 of of qualified educational expenses.  The credit allowable for an unlimited number of years of post secondary education.  The credit applies on a per taxpayer basis, not a per student basis.

Both the Hope credit and the Lifetime Learing credit begin to phase out if your adjusted gross income is over $47,000 on a single return and $94,000 on a joint return.  You may not claim the Hope credit and the Lifetime Learning credit for the same student in the same year.

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 ta 529 plan.  Withdrawals from a 529 plan are not taxed as long as they are used to pay for qualified educational expenses.