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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.
The 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.
The 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."
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