There are a variety of tax incentives for families who are (or soon will be) paying for higher education costs and student loans. We're going to provide a quick overview...
The tuition deduction is up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.
Read more about the tuition deduction from the IRS here.
Student loan interest deduction
Personal interest you pay, other than certain mortgage interest, typically isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan used for higher education. There is an "above-the-line" deduction up to $2,500 (2016 and 2017); no time limit in deductibility period; subject to income limitations.
Read more about the student loan interest deduction from the IRS here.
American Opportunity (Hope) Credit is up to $2,500 in 2016 and 2017 per student for first years of higher education expenses paid. Lifetime Learning Credit is 20% of tuition paid, up to $2,000 per return for 2016 and 2017. Both credits are subject to income limitations and cannot be used in conjunction with each other for the same student.
Learn more about eligibility for education credits from the IRS here.
Section 529 plans
Distributions used for qualified for higher education expenses are income tax free. Contributions are potentially subject to gift tax, but are eligible for the contribution on 2016 and 2017 as if it had been made over a 5-year period.
Read more about 529 plans (also called Qualified Tuition Plans) from the IRS here.
Coverdell education savings accounts
If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. However, total contributions for the beneficiary in any year can't be more than $2,000, no matter how many accounts have been established.
Learn more about Coverdell ESAs from the IRS here.