Be Educated on Education Tax Incentives

• American opportunity tax credit

For tax years beginning in 2010, individuals may claim an American opportunity tax credit under equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses (including course materials), plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period—i.e., a maximum credit of $2,500 a year for each eligible student. For 2010, the availability of the credit phases out ratably for taxpayers with modified AGI of $80,000 to $90,000 ($160,000 to $180,000 for joint filers). The Credit is allowed for each of the first four years of the student's post-secondary education in a degree or certificate program.

• Exclusion for scholarships

For 2010, a qualified individual can exclude from income a qualified scholarship or qualified tuition reductions. These exclusions generally do not apply to any amounts received by a student that are payment for teaching, research, or other services as a condition for receiving the scholarship or tuition reduction.

• Employer-provided educational assistance

For 2010, an employee may exclude educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250 under.

• Above-the-line student loan interest deduction

Individuals can deduct a maximum of $2,500 annually for interest paid on qualified higher education loans. For 2010, the deduction phases out ratably for taxpayers with modified AGI between $60,000 and $75,000 ($120,000 and $150,000 for joint returns).

• Coverdell education savings accounts

Taxpayers can contribute up to $2,000 per year to Coverdell Education Savings Accounts for beneficiaries under age 18 (and, special needs beneficiaries of any age). The account is exempt from income tax, and distributions of earnings from CESAs are tax-free if used for qualified education expenses. The contribution limit is phased out for contributors with modified AGI between $95,000 and $110,000 ($190,000 and $220,000 for joint returns).

brad@mcarthurco.com
704.544.8429