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Getting A High Tax Grade For Higher Education Credits

It costs a pretty penny to send a child to college these days, but at least parents may be eligible for some tax relief. For instance, if you qualify, you can claim either the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC) for your child.

The maximum AOTC is $2,500 and it is available during each of the first four years of post-high school study for each student in your family. Meanwhile, the maximum LLC is $2,000 per year—your credit is 20% of the first $10,000 in qualifying expenses—and it can be claimed in any year your child is in school, including for graduate studies and professional training. But you're limited to one LLC credit per family in each tax year. Both credits are phased out for higher-income families, but the income ranges for the AOTC are higher than the levels for the LLC.

However, if you elect to use the AOTC, you may run into a quandary because of its limit for four years of study.

For example, suppose your daughter enters college as a part-time student in the fall of 2017 and incurs $2,000 in qualified expenses for the year. But she plans to become a full-time student in 2018 and to graduate in 2021. As a result, you might claim a $400 LLC credit in 2017—20% of $2,000—and preserve the AOTC for 2018 through 2021, when you can claim the maximum $2,500 credit each year.

Of course, other factors may come into play, including your personal tax situation for the years in question. Just keep these rules in mind when you file your annual tax returns.


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This article was written by a professional financial journalist for Larkspur Financial Advisors and is not intended as legal or investment advice.

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