Tax Tips

February 2005

Student loan interest:

Many people are still under the assumption that student loan interest is no longer deductible after they have been paying on the loan for 60 months. In 2002, the tax laws were changed to allow you to claim a deduction of up to $2,500 for interest paid on a qualified student loan. Only the amount of interest actually paid may be deducted. You cannot claim the deduction in any tax year in which another taxpayer claims you as a dependent. You do not need to itemize to claim this interest. This amount is subject to a phaseout which begins at $50,000 of income for a single person, and at $100,000 for a married couple filing a joint return. If you have student loan interest that has been paid but not claimed it is possible to prepare and submit an Amended tax return for that year and receive a refund.

Hope and Lifetime learning credits:

For you, your spouse, and your children there are two nonrefundable tax credits for payments made for qualified tuition and related expenses for post-secondary education. For students in their first two years of an undergraduate degree program you may be able to claim a Hope Credit of up to $1,500 for each eligible student. This applies whether or not your child is away at college or living with you at home. Once a student is beyond their second year of college, whether undergraduate or post-graduate, you may be able to claim a Lifetime Learning Credit of up to $2,000 for each family. An important factor to remember for parents of a student to claim these credits is that the student must be claimed as a dependent by the parent.

Tuition and fees deduction:

Another possibility to consider is that you can claim a tax deduction for qualified higher education expenses. You can take a deduction of up to $4,000 for qualified tuition and related expenses as an adjustment to income, even if you do not itemize your deductions. Certain restrictions apply. There are times where claiming this deduction is more beneficial than claiming the Hope Credit or Lifetime Learning Credit.

Past Tax Tips: