The American Opportunity credit (up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education) and the Lifetime Learning credit (up to $2,000 per tax return for postsecondary education expenses beyond the first four years) reduce taxes dollar-for-dollar. Both a credit and a tax-free Section 529 plan or Coverdell Education Savings Account distribution can be taken as long as expenses paid with the distribution aren’t used to claim the credit.
But income-based phaseouts apply to these credits. If you don’t qualify because your income is too high, your child might. However, you must forgo your dependency exemption ($3,800 for 2012) for the child — and the child can’t take the exemption.
If your family incurred postsecondary education expenses in 2012, please contact us to determine how you can make the most of these credits.
Source: PDI Global