The cost of higher education is a substantial expense for most families.  Taxpayers are often disappointed to learn the Education deductions and credits that have been a part of our tax code for several years may not provide any benefit because of the elimination of these benefits for higher income taxpayers.

The HOPE Credit, which provides up to $1,800 for each of the first two years of undergraduate study, and the Lifetime Learning Credit, which provides up to $2,000 per year for all undergraduate or graduate level study, completely phase out for unmarried taxpayers with gross income over $58,000 and for married taxpayers filing a joint return with gross income over $160,000.

The Tuition and Fees Deduction is allowed for up to $4,000 for unmarried taxpayers whose gross income does not exceed $65,000 ($130,000 for married taxpayers filing a joint return).  A deduction is allowed for up to $2,000 for unmarried taxpayers whose gross income does not exceed $80,000 ($160,000 for married taxpayers filing a joint return).

The American Opportunity Credit, a new credit, replaces the HOPE Credit for the 2009 and 2010 tax years.  The credit, which provides up to $2,500, applies to all four years of undergraduate study.  The credit phases out for unmarried taxpayers with gross income between $80,000 and $90,000 and for married taxpayers with gross income between $160,000 and $180,000.

While the enhanced credit will not benefit all taxpayers, the liberalized income limit rules will benefit many who were previously phased out of any higher education tax benefits.  Hopefully, this benefit will be extended beyond the 2010 tax year.

For more information, please contact Crystal Rai at 215-564-1900.

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