Tax Education Credits and Deductions

BOSTON (CBS) - College is very expensive. Congress and the IRS have given us a few ways to offset education costs.

The American Opportunity Credit: This credit can help parents and students pay part of the cost of the first four years of college. Congress modified the Hope Credit, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. The credit amount is equal to 100% of the first $2,000 of qualified expenses plus 25% of the expenses in excess of $2,000. However, the maximum annual credit per student is $2,500. The income limits: For singles, it phases out between $80,000 and $90,000 and those filing jointly its $160,000 to $180,000. This credit was extended thru 2017.

The Lifetime Learning Credit: This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years it takes you to get a degree. Eligible taxpayers may qualify for up to $2,000. You cannot use both education credits in the same year. There is an income limit; if you are single to be eligible for the credit you cannot earn more than $62,000. Married filing jointly its $124,000.

Tuition And Fees Deduction: Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American Opportunity or Lifetime Learning credits. You do not have to itemize to get this deduction! This deduction is due to expire with the 2014 tax return.

Student Loan Interest Deduction: Limit is $2,500 for the year. As usual, there are income limits as well, the deduction is phased out for singles with incomes between $75,000 and $80,000 and there is no deduction once your income reaches $80,000. If you are married filing jointly it's $155,000 and gone once you reach $160,000. This deduction can also be used whether you itemize or file the short 1040.