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Education Tax Incentives

There are a variety of money saving benefits available to taxpayers that may help reduce the overall cost of a college education. The IRS offers various tax savings (deductions or credits) to individuals and families paying higher education expenses.

(The following information is intended for educational purposes and should not be considered as legal or tax advice. Pending legislation may affect the programs. You should consult your professional tax advisor or attorney for more information about the higher education tax benefits and to determine your eligibility. You also may consult the IRS Publication 970 on Tax Benefits for Education.)

The Hope Scholarship Tax Credit
The Hope Scholarship is a tax credit (not a scholarship) designed to help offset education expenses. Tax credits are subtracted from the tax your family owes.
  • Families that owe less in taxes than the maximum credit may only take the credit up to the amount of taxes owed.
  • Up to $1,650 for each eligible dependent student may be claimed for the first two years of college. The student must be listed as a dependent on your federal tax return unless the credit is for the taxpayer or the taxpayer's spouse.
  • Eligible students must be enrolled at least half-time in a degree or certificate program and have no felony drug convictions before the end of the tax year.
  • Eligible education expenses include tuition and other related expenses1.
Lifetime Learning Tax Credit
The Lifetime Learning Tax Credit may be subtracted from the tax your family owes.
  • Families that owe less in taxes than the maximum credit may only take the credit up to the amount of taxes owed.
  • A credit of up to $2,000 per family per tax return may be claimed for all years of postsecondary education and for an unlimited number of tax years. The student(s) must be listed as a dependent on your federal tax return unless the credit is for the taxpayer or the taxpayer's spouse.
  • Eligible students must be enrolled in at least one postsecondary education course. The course must either be part of a degree program or taken to acquire or improve job skills.
  • Eligible education expenses include tuition and other related expenses1.
Tuition & Fees Deduction
The Tuition and Fees Deduction reduces the amount of a taxpayer's taxable income.
  • Up to $4,000 paid for tuition and fees may be deducted as an adjustment to income even if you do not itemize deductions. This may benefit tax payers who do not qualify for the Hope or Lifetime Learning tax credits. The student(s) must be listed as a dependent on your federal tax return unless the credit is for the taxpayer or the taxpayer's spouse.
  • Eligible education expenses include tuition and other related expenses1.
  • Eligible students must be enrolled in one or more courses at an eligible educational institution and must have either a high school diploma or GED.
Student Loan Interest Deduction
You can deduct interest paid on student loans to reduce your amount of taxable income.
  • To be eligible, you must have been enrolled at least half-time in a postsecondary degree or certificate program.
  • A maximum of $2,500 of student loan interest paid each year may be deducted. The allowable deduction decreases as income increases.
  • In addition to simple interest on the loan, the following also may be considered student loan interest: loan origination fees, capitalized interest, interest on revolving lines of credit used to pay qualified educational expenses, and interest on refinanced student loans.
  • Loans must have been used to pay for higher education expenses which may include tuition, fees, room & board, books, supplies, equipment and transportation.
When to claim what!
Program specifics vary, but in general:
  • You may take only one tax credit for each eligible student per tax year.
  • More than one benefit may be claimed in the same year if you are using a different student's expenses to determine the credit (e.g., the Hope Scholarship can be claimed for your college freshman and the Lifetime Learning credit may be claimed for yourself).
  • You may take a tax-free distribution form a Qualified Tuition Program or Coverdell Education Savings Account and also claim either the Hope Scholarship, Lifetime Learning credit, or Tuition and Fees Deduction as long as the same education expenses are not used to qualify for each benefit and you do not exceed the maximum Lifetime Learning benefit. You will receive a 1098-T from the college or university that your student attends. The 1098-T will specify the amount of eligible expenses that may be used when calculating your tax credits. You may not claim expenses that were paid with tax-free scholarship, grants or other educational assistance OR expenses used to claim a different tax benefit or deduction.
You may wish to talk to a tax advisor for help in determining which tax benefit is best for you.