College-Related Tax Deductions: Are You Eligible?
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Here's your Money Briefing for Tuesday, April 5th. I'm J.R. Whelan for The Wall Street Journal. A college education is one of the biggest expenses a household will ever take on. Fortunately, there are tax deductions and other benefits that can soften the financial blow. But the rules surrounding those college-related benefits can be tricky.
So that's actually a really frustrating point for some families. In many cases, institutional or private scholarships and grants aren't going to count as taxable income, but there are stipulations.
On today's show, we'll take a look at some of those terms with WSJ contributor Cheryl Winokur-Monk. Plus, we'll get an update on the student loan payment suspension that's set to expire at the end of the month. That's after the break.
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What college-related tax benefits are introduced at the start of the episode?
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Families of college students may be in line for tax deductions or credits on their 2021 taxes, the tax returns they're filing this year. But those benefits have to be accounted for the right way. Here to walk us through it all is WSJA contributor Cheryl Winokur-Monk. Cheryl, thank you so much for being with us.
Thanks for having me.
So Cheryl, there are some tax breaks associated with college expenses. They can potentially put a dent in people's tax bill. Do most people know about these?
I don't think people really know what they could be eligible for unless they're in that situation. Why would you unless it's something you really closely follow? I mean, they have been highly publicized, but I don't know that people really pay attention. Some of these rules are just so complicated, whether the maximums on what you have to make and those things like that. So even if you have some general idea that there are credits and deductions, I don't think that you know necessarily the specifics until you really look into it.
Okay, well, let's take a look at some of the specific tax breaks out there, and let's start with tax deductions. A lot of people haven't had to make student loan repayments since the early days of the pandemic, but many people have. How would they be eligible for a deduction?
So if you've paid, if you made these student loan repayments, you could be eligible if you, your spouse, or a dependent paid student loan interest last year. There are, however, some qualifications. So for instance, the filer's modified adjusted gross income has to be less than $85,000 or $170,000 if filing jointly. The other thing is this also applies to private loans. So even if your federal loans were paused and you didn't make payments there, but you were making private loan payments, you could also be eligible for this deduction.
And now to get this deduction, does it matter if people itemized on the return?
It does not, which is actually a nice perk for many people.
Now, there are also two kinds of tax credits available. Can you tell us about those?
Sure. So the first one is called the American Opportunity Credit. That credit has a higher maximum, which is $2,500 per student, and it can only be claimed for four tax years for the same student.
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