Surviving the tax crunch
Campus Times
March 5, 1999
With the IRS's new tax laws, college students are able to save more
money by writing off portions of their tuition as a tax deductible item.
Deductible items range anywhere from books, loans, transportation and housing.
Information is available at post offices, libraries, IRS offices, the Internet
(http://www.irs.ustreas.gov/)
and by fax at (703) 368-9694.
According to an informational packet from the Internal Revenue Service
(IRS), a number of new tax benefits may be available to students and their
parents.
The benefits affect those who are "saving for or paying higher
education costs for themselves and members of their families," according
to the packet. Included as eligible persons are also those currently repaying
student loans.
The news comes following the implementation of new benefits made available
last year. Revisions were last made in December and may be found in the
IRS's Publication 970, which focuses on new tax benefits regarding higher
education.
Included as advantages to these new benefits are two educational credits-the
Hope Credit and the Lifetime Learning Credit-as well as education individual
retirement accounts (IRAs) and the repayment of interest accrued on specific
student loans. The publication also discusses areas concerning the cancellation
of some student loans, qualified tuition programs, as well as interest earned
on specific savings bonds.
Educational Tax Credits
Taxpayers may now be eligible to claim at least one tax credit for any
postsecondary education expenses. The amount to which each educational tax
credit may be claimed is determined by an individual's total costs for "qualified
tuition and related expenses for students," in addition to the amount
of the individual's modified adjusted income, according to the publication.
Qualified tuition and related expenses include those costs required
for tuition and miscellaneous fees, basically any costs necessary for the
enrollment or attendance at an eligible institution of higher learning.
Ed Mervine, director of financial aid, said the University is accredited
as such an institution. Therefore, ULV students and their parents are eligible
for these credits.
Regarding miscellaneous costs, however, the expense of course-related
textbooks, supplies and activity fees may count as qualified expenses only
if the costs are paid to the University as a part of enrollment. These expenses
do not include costs for insurance, medical fees (including those provided
through ULV's Health Center), room and board, transportation or other individual
expenses.
Expenses which are covered by tax-free grants, scholarships and employer-education
aid are not eligible for these tax credits. However, those same expenses
paid with loans may be eligible as tax credits.
In addition, if a student is claimed as a dependent by his or her parent(s),
it is not the student who files for the tax credit; the parent does. But
if the student is not claimed as a dependent, he or she may qualify for
the credit on his or her own. However, if an individual has already filed
a deduction for postsecondary school expenses, he or she cannot also claim
a credit for such expenses.
Hope Credit
For expenses made after Dec. 31, 1997, an individual may qualify for
the Hope Scholarship Credit. The credit is available on a per-student basis
for students who are in their first two years of college-those in either
freshman or sophomore standing.
The Hope Credit credits the taxpayer all of the first $1,000 of tuition
expenses in addition to half of the next $1,000 in tuition costs. The current
maximum amount for this credit is set at $1,500, but with inflation expected
after the year 2001, that amount may change.
This credit may be claimed for two tax years, and it may only be claimed
for students enrolled at a postsecondary school for at least half time.
Students must also not have any sort of drug felony conviction during the
year in which the credit applies. College expenses paid on or after January
1, 1998, may qualify for this credit.
Lifetime Learning Credit
For those expenses paid on or after July 1, 1998, an individual may
qualify for the Lifetime Learning Credit. The credit may be applied to any
postsecondary education expenses for all undergraduate, graduate and continuing-education
work. This includes students who are in any class standing.
Taxpayers may claim 20 percent of $5,000 of educational expenses-equal
to a maximum of $1,000 per tax year. As of the year 2003, the total amount
of eligible educational expenses may increase to $10,000, crediting the
taxpayer a maximum of $2,000.
Choosing a Credit
Taxpayers may claim either the Hope or Lifetime Learning credit, but
cannot file for both during one tax year. For example, if, for the 1998
tax return, a person chooses to file for the Hope Credit for a student,
he or she cannot also file for the Lifetime Learning Credit for that same
student in that same tax year.
Therefore, it is possible for a taxpayer to claim the Hope Credit for
a student during his or her first two years, then claim for the Lifetime
Learning Credit the remaining tax years.
If a taxpayer pays for qualified expenses for more than one college
student in the same tax year, he or she may claim credits on a per-student,
per-year basis. For example, taxpayers with two qualified college students
who are beyond the second year of school may claim an individual credit
for each student, said H&R Block Tax Preparer Ada Teleon.
Teleon also said that only one person is eligible to claim either credit
for a students' expenses. Therefore, either the parent of a dependent student
or the dependent student-but not both-can claim credit for a specific tax
year.
Loan Interest Deduction
New tax breaks may also allow eligible college graduates or their parent(s)
the opportunity to deduct student-loan interest fees on the first 60 months
of the loan payments.
This interest fee applies to those payments due and paid after 1997.
Also, if a loan is cancelled for whatever reason, the taxpayer may not have
to include any amount in income. And, even if the taxpayer does not itemize
other deductions, he or she may still qualify for the tax deduction.
It is not required that the student loan be federally guaranteed or
subsidized in order for a loan to qualify as a deduction. However, the loan
must be used toward any educational expenses such as textbooks, tuition,
and room and board, as well as other needs.
The deduction for which a taxpayer can file must not exceed $1,000 for
the 1998 tax year, but that is expected to increase by $500 every year thereafter.
Taxpayers are not eligible to claim the deduction during a tax year
in which another taxpayer claims him or her as a dependent.
However, he or she may deduct payments made in a later year when the
taxpayer is no longer a claimed dependent. This is subject to other requirements.
Also, if a student refinances a qualified student loan, he or she may
file for a loan interest deduction for the consolidated loan. The 60-month
period of repayment still applies to the original loan date, not the date
of the refinanced loan.
For More Information ...
To receive additional details or information about some of the new tax
breaks for students and their parent(s), one can order free publications
and forms about the matter from the IRS.
The IRS can be contacted via the Internet at http://www.irs.ustreas.gov,
via Telnet at iris.irs.ustreas.gov,
through File Transfer Protocol at ftp.irs.ustreas.gov
and through direct dial by modem at (703) 321-8020.
An individual may also reach the IRS via TaxFax service by calling (703)
368-9694 from a telephone connected to a fax machine. Any forms, instructions
and information regarding new benefits may be ordered by calling (800) 829-3676,
or may be picked up at post offices, libraries and IRS offices.
