Each year when the IRS releases tax law changes, everything from the basic tax brackets to retirement account limits change. And these changes affect many credits and deductions, including education-related tax credits, such as the Hope Scholarship and American Opportunity Tax Credit.
In 2014, some of these credits are going up, so you can claim more deductions on the taxes you file in 2015, if you’re paying for your education or that of a child. Here’s an overview of the education-related changes for 2014:
Hope Scholarship Credit/American Opportunity Tax Credit
In 2014, the Hope Scholarship Credit will allow you to take a tax credit for all of your qualified tuition and related expenses up to $2,000, plus 25 percent of the next $2,000 of expenses, for a maximum credit of $2,500.
So if you pay $4,000 in total tuition, you could get a $2,500 credit. This is the same if you have more than $4,000 in total tuition and related expenses. If you pay $3,000, your credit would be $2,250.
The Hope Scholarship Credit is also determined by income. For 2014, the full credit will be available to taxpayers with a modified adjusted gross income of $80,000 or less ($160,000 for married couples filing jointly). Income over this amount will be used to begin phasing out the credit amount.
You can find out more about the American Opportunity Credit/Hope Credit here.
Interest on Education Loans
Taxpayers who are making payments on qualified student loans can write off the interest paid, much like the mortgage interest deduction. In 2014, the maximum deduction for interest paid on education loans is $2,500.
The credit begins to phase out, as of 2014, for taxpayers with a modified adjusted gross income of $65,000 ($130,000 for married couples filing jointly), and is completely phased out for taxpayers with a modified adjusted gross income of $80,000 ($160,000 for married couples filing jointly).
Wondering how you’ll know how much student loan interest you paid? You should get a form from your education loan servicer detailing your interest payments for the past year.
These are credits and deductions that you’ll want to take advantage of if possible. So be sure that your tax preparer checks your eligibility for these credits when you file your 2014 taxes, or look for these credits in your DIY tax software.