Maximize those Tax Credits for 2012

As students head back to college, the daunting task of paying tuition bills increases. The tax law does provide some relief by looking at credits to reduce after tax costs for college expenses.  Be sure to ask your CPA or tax preparer with regards to the American Opportunity and Lifetime Learning credits.  It should look something like this:

For 2012, eligible taxpayers can claim an American Opportunity credit of 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000 of qualifying expenses for each of the first four years of a student’s higher education—a maximum credit of $2,500 per student per year. The Lifetime Learning credit is available for 20% of up to $10,000 of qualifying higher expenses, up to a maximum credit of $2,000 per year. Unlike the American Opportunity credit, the Lifetime Learning credit is calculated on a per family (i.e., per tax return) basis, not on a per-student basis. Moreover, both the American Opportunity and Lifetime Learning credits cannot be claimed for the same student in a tax year.

The credits are phased out for higher income taxpayers. For 2012, the Lifetime Learning credit is phased out for joint filers with modified adjusted gross income (MAGI) between $104,000 and $124,000, and for other filers with MAGI between $52,000 and $62,000. The phase-out range for the American Opportunity credit is $160,000 to $180,000 for joint filers and $80,000 to $90,000 for other filers. On the other hand, up to 40% of the American Opportunity credit is refundable for taxpayers with little or no tax liability to offset.