Can we get a tax deduction for college costs?December 16, 2011: 10:10 AM ET
We paid $25,000 for our son's college costs this fall. Can we get a tax deduction? —Name Withheld, Albany, N.Y.
Yes, you can—but you're better off taking a tax credit instead. The American Opportunity Tax Credit gives you a dollar-for-dollar reduction in your tax bill for up to $2,500 annually in college expenses per student. The tuition and fees deduction lowers your taxable income by up to $4,000. Since the deduction is smaller for high earners, it will cut your taxes $560 at most if you're in the 28% tax bracket.
The fine print: With both tax breaks, income limits apply. The AOTC's is $180,000 if you file jointly, and it starts phasing out at $160,000. You can't take both a credit and a tuition deduction for the same student in the same year (though you can still deduct student-loan interest). Also, the credit doesn't apply to expenses you cover with a 529 plan or scholarship.
-- Donna Rosato
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