Taking Taxes Into Account
A valuable tax deduction for college students or their parents is disappearing. You can deduct up to $4,000 in college tuition and fees from your 2005 federal taxes if your adjusted gross income was less than $80,000 for singles or $160,000 for a married couple, but not next year.
Other education tax breaks are changing, too--for the better. The income at which you qualify for two federal tax credits--the Hope credit and the lifetime learning credit--has increased slightly. You can take only one of these credits per year per student. In 2006, you will qualify fully for either credit until your adjusted gross income hits $45,000 for singles and $90,000 for a married couple. The credits decrease gradually before phasing out at an income of $55,000 for singles and $110,000 for a couple. In addition, the Hope credit, which covers the first two years of post-secondary education, will increase by $150 in 2006 to a maximum of $1,650. The lifetime learning credit remains unchanged at up to $2,000. And educational loan interest is often deductible. While deductions reduce your income for tax purposes, credits cut the actual tax you pay dollar for dollar.
This story appears in the April 17, 2006 print edition of U.S. News & World Report.