The cost of education has been rapidly rising. Fortunately, the IRS does provide some ways to get education to lower your tax bill.
There are two education credits, the American Opportunity Credit and the Lifetime Learning credit A household can claim either the American Opportunity credit or the Lifetime learning credit, but not both for themselves, spouse or dependent child. The American Opportunity credit is available for the first four years where a student is enrolled at least half-time. The Lifetime Learning Credit is available for any post-secondary education.
Other ways for education to pay you on your tax return is the deductibility of student loan interest of up to $2500 or the amount you paid.
Even if you are just saving for your child’s education, some states offer tax deductions or credits for contributions to 529 plans.
The American Opportunity Credit (2025 and 2026)
The credit is $2500 per student for tuition, fees and course material, but only 40% or $1000 is refundable.
To file, you must have a 1098-T from an eligible educational institution, but exceptions do exist.
Phaseouts applies at modified AGI of $80,000-$90,000 for singles or head of household and $160,000-$180,000 for married filing jointly.
The Lifetime Learning Credit (2025 and 2026)
The Lifetime Learning Credit provides up to $2000 nonrefundable credit per tax return for any post-secondary education. It can not be claimed for the same student as AOTC.
A computer can be considered a qualified expense if its required for attendance.
Room and board, insurance, medical expense, transportation, and personal living costs are not qualified expenses.
Both of these credits start phasing out for Single filers at a modified adjusted gross income of $80,000 and $160,000 for Joint filers.
To file, you must have a 1098-T from an eligible educational institution, but exceptions do exist.
Student Loan Interest Deduction (2026)
You may be able to deduct interest on a qualified student loan. The amount you may deduct is the lesser of $2500 or the amount you actually paid. You must have paid interest on a qualified student loan in the tax year you are filing. The student loan interest deduction start phasing out for Single filers at a modified adjusted gross income of $85,000 to $100,000 and $175,000 to $205,000 for Joint filers.
Contributions to 529
Although not deductible on federal taxes, up to 30 states offer state income tax deductions or credits to contributions to the 529 plan. Withdrawals for qualified education expenses, tuition, books, fees, supplies, room and board, are tax free. $10,000 withdrawals are also allowed for K-12 tuition. And, the SECURE 2.0 Act permits rollovers from 529 accounts to ROTH IRAs.