Tax benefits might be available if you're saving for or paying education costs for:
Another student who's a member of your immediate family
However, most benefits apply only to higher education. Also, you usually can't claim more than 1 benefit for the same qualifying education expense.
Two education credits available can reduce the tax you owe dollar for dollar.
American Opportunity Credit -- This is available for tax years 2009 through 2012. It’s an expanded Hope Credit.
You might be able to claim an American Opportunity Credit of up to $2,500 for qualified education expenses paid for each eligible student. This is a per-student limit you must claim in the first 4 years of higher education. To learn more, see the Tax Credits for Higher Education tax tip.
Lifetime Learning Credit -- You might be able to claim this credit for up to $2,000 for qualified education expenses. You can claim this credit only once per return, but there's no limit on the number of years you can claim the credit. To learn more, see the Tax Credits for Higher Education tax tip.
You also might be able to claim 9 other education-related tax benefits.
Student-loan interest deduction -- If you're paying back loans you took to pay for higher education, you might be able to deduct up to $2,500 per return per year. The student-loan interest deduction is an adjustment to income. So, you can claim the deduction even if you don't itemize deductions. To learn more, see the Deducting Student-Loan Interest tax tip.
Tuition and fees deduction -- In prior years, you could deduct up to $4,000 of qualified education expenses paid during the year for:
This deduction expired on Dec. 31, 2011. To learn more, see the Tuition and Fees Deduction tax tip.
Student loan cancellation -- If you're responsible for making loan payments and the loan is canceled, you usually must include the amount forgiven in your gross income for tax purposes. However, if your student loan is canceled, you might not have to include the amount in income if you fulfill certain requirements.
Student loan repayment assistance -- Loan repayment programs provide student loan repayment assistance to participants if those participants provide certain services. These are usually primary health services in areas where shortages of these services exist.
Coverdell education savings accounts (ESAs) -- Coverdell ESAs are tax-advantaged accounts that allow you to save money for education. The earnings are tax-free if used for qualified education expenses. You can't deduct contributions to a Coverdell ESA. However, money deposited in the account grows tax-free until you withdraw it. To learn more, see the Education Savings Accounts (ESAs) tax tip.
Qualified tuition plans -- A qualified tuition plan (QTP) is a personal savings plan established for paying a student's qualified education expenses at an eligible educational institution. Distributions from the account are tax-free if you use the money to pay for qualified expenses -- like room and board. To learn more, see the Qualified Tuition Plan (Section 529) tax tip.
IRAs -- You might be able to withdraw from your IRA before you reach age 59 1 / 2 for education. To do so, you must pay qualified education expenses for any of these:
To learn more, see the Individual Retirement Accounts (IRAs) tax tip.
Tax-free U.S. Savings Bond interest -- You must usually pay tax on the interest earned on U.S. Savings Bonds. However, if you cash in savings bonds for qualified education expenses, you don't have to pay tax on the interest if you meet all requirements. To learn more, see U.S. Savings Bonds Interest Exclusion.
Employer-provided educational assistance -- If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. So, you don't have to include the benefits on your return. To learn more, see the Employer-Provided Educational Assistance tax tip.
Deduction for work-related education -- You might be able to deduct expenses for to work-related courses if both of these are true:
You're an employee.
You itemize deductions.
To learn more, see IRS Publication 970: Tax Benefits for Education.