Education credits

Education credits

Overview / Introduction:

If you or your dependent is a student, you may want to determine whether you are eligible for one of the two educational tax credits that cover common student expenses. These credits provide greater tax savings than a tuition deduction since they reduce your tax bill on a dollar-for-dollar basis. If you are eligible to claim both credits, you should choose the one that provides the greatest tax savings for you.

Who can claim?

Should meet all the following three conditions:

a.    If you pay qualified education expenses of higher education.

b.    If you pay the education expenses for an eligible student.

c.    If the eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

Some questions to glance for easy understanding:

1.    What is the maximum benefit?

You can reduce your income subject to tax by up to $4,000.

2.    What is the limit on modified adjusted gross income (MAGI)?

·         $160,000 - Married Filing Joint.

·         $80,000 - Single, Head Of Household, or Qualifying Widow(er).

3.    Where is the deduction taken?

As an adjustment to income on Form 1040 or Form 1040A.

4.    For whom must the expenses be paid?

A student enrolled in an eligible educational institution who is either:
•You
•Your spouse
•Your dependent for whom you claim an exemption.

5.    What tuition and fees are deductible?

Tuition and fees required for enrollment or attendance at an eligible post secondary educational institution, but not including personal, living, or family expenses, such as room and board.

6.    Who cannot claim deduction?

You can't claim the tuition and fees deduction if any of the following apply.

·         Your filing status is Married Filing Separately.

·         Another person can claim an exemption for you as a dependent on his or her tax return. You can't take the deduction even if the other person doesn't actually claim that exemption.

·         Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).

·         You (or your spouse) were a nonresident alien for any part of 2015 and the nonresident alien didn't elect to be treated as a resident alien for tax purposes.

Expenses That Don't Qualify

Qualified education expenses don't include amounts paid for:

• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Types of Education credits:

1.       American Opportunity Credits (AOC)

2.       Lifetime learning Credits (LLC)

3.       Tuition and Fees.

Source document Outlook is given below:

Input In Lacerte software is given  below:

          Preparing Form 8863:

If you claim either of the tax credits, the IRS requires you to fill out Form 8863 and attach it to your tax return. Form 8863 requires you to calculate the appropriate credit amount based on your eligible school expenses. In order to claim the tax credit for yourself, you cannot be claimed as a dependent on a different taxpayer's tax return. Otherwise, only that taxpayer is eligible to claim the credit on your behalf.

Note : Depending on the AGI Tuition & Fee deduction is disallowed.

Final Output in 1040 Form, appears in Page 2 (line no.50)

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