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House aim: Merge college tax breaks

By Kay Bell ·
Thursday, June 26, 2014
Posted: 1 pm ET

The Internal Revenue Code offers a lot of help for students. The problem is that, like most other tax-related matters, the educational tax breaks and how they work together -- or don't -- are confusing.

© Denise Lett/

That's part of the reason, say a couple of U.S. representatives, that they introduced H.R. 3393, the Student and Family Tax Simplification Act. That proposal, sponsored by Reps. Diane Black (R-Tenn.) and Danny Davis (D-Ill.), consolidates four existing education provisions into what the sponsors say is "a single, modernized and strengthened" American opportunity tax credit.

The American opportunity credit was the creation of President Barack Obama. Through the 2017 tax year, it expands and replaces the Hope educational tax credit. Currently, the American opportunity credit provides a credit of up to $2,500. Remember, a credit is a dollar-for-dollar reduction of any tax owed.

Even better, for some students (or their parents), up to $1,000 of the tax credit is refundable. That's just what it sounds like; even if you don't owe any taxes, you could get the credit amount back as a refund.

Combining expired educational components

H.R. 3393, which was approved by the Ways and Means Committee on June 25, would combine the American opportunity credit's provisions with those of the Hope credit, the lifetime learning credit, and the tuition and fees above-the-line tax deduction.

The Hope credit would be permanently replaced by a modified American opportunity tax credit. That would mean no more worrying about the tax credit expiring.

The lifetime learning credit and the deduction for qualified tuition and fees, which actually expired on Dec. 31, 2013 and must be renewed as part of a tax extenders package, would be eliminated.

But don't worry, say supporters of the changes. Many of the provisions in those measures would be folded into the new, permanent American opportunity tax credit.

The Black-Davis version still would provide a maximum credit of $2,500, but the first $1,500 of the credit would be refundable. The new credit also could be used to offset tuition, fees and course material costs.

It could be claimed for up to four years of post-secondary education at qualifying four-year universities, community colleges, and trade and vocational schools.

The credit would begin to phase out for families with incomes between $86,000 and $126,000. The phase-out ranges would be half those amounts for single filers.

Small steps to tax reform

This week's action by Ways and Means is part of Chairman Dave Camp's (R-Mich.) continuing effort to implement some sort of tax reform by dealing with tax extenders on an individual basis and to make more tax laws permanent.

This is the opposite of the Senate Finance Committee's approach to the expired tax provisions. That tax-writing panel has already approved a bill that renews almost all of the expired tax breaks.

What do the differing approaches mean for the expired tax laws and those of us who are trying to make tax moves, mid-year and beyond?

My congressional crystal ball has been fuzzy for a while now, thanks to the political maneuvering and legislative recalcitrance of today's lawmakers. But one thing is clear. We're facing more confusion and delays.

Ultimately, both sides are going to go head-to-head as 2014 winds down when it comes to dealing with popular, but now expired, tax provisions. U.S. Senate Majority Leader Harry Reid (D-Nev.) has already said the outlook for passage of tax extenders is now after the November midterm elections.

But if the House at least keeps passing provisions piecemeal, there will be something with which Congress can start to work in November. They'll just have to work quickly.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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