Tax breaks can help cut education costs down to size. Credits are better than deductions because they offer a dollar-for-dollar reduction of taxes owed.
Two types of credits are available to help defray college expenses.
Hope credit allows you to claim up to $1,500 for qualified education expenses, including tuition, fees, books and supplies. This credit is available only during the first two years of postsecondary education. The amount of your Hope credit for 2006 gradually phases out when modified adjusted gross income hits $45,000 for single filers and $90,000 for joint filers.
Lifetime Learning Credit, which has the same income restrictions, is more forgiving. Those who are eligible can claim a credit of up to $2,000 for qualified education expenses. There is no limit on the number of years it can be claimed per student and no requirement that students be enrolled at least half time during the academic year.
But you can't claim the Hope and Lifetime Learning credits for the same student in the same year. If you pay qualified education expenses for more than one student in the same year, however, you can claim the Hope credit for one student and the Lifetime Learning Credit for another.
While the tuition-and-fees tax deduction was eliminated in 2006, those with a modified adjusted gross income of less than $65,000 ($135,000 on joint returns) may still be eligible to deduct the interest paid on a student loan, which can reduce taxable income by up to $2,500.
The sticker price for a private college education can be astronomical, but what students actually pay is often much less. See "
Don't dismiss private colleges due to cost."