By Mario McKellop
According to Forbes, the average college student graduating in 2016 will leave academia with a degree and $37,000 in student loan debt. While finding a way to pay back that debt will be the primary concern for new grads, they should also know how that debt will affect their 2017 tax filings. Here are a few tips on deductions and credits you’ll be entitled to, and what to do if you’re filing as a dependent.
Student Loan Interest Deduction
If you paid interest on student loans in 2016, you probably qualify for the Student Loan Interest Deduction. If your student loan wasn’t given to you by a family member or your employer, you were enrolled at least half-time in an accredited institution of higher learning and your modified adjusted gross income (MAGI) was less than $80,000 – or $160,000 if you’re filing a joint return – you can claim the interest you paid on your loans as a deduction. If you meet the requirements, you can deduct a cool $2,500 from your taxable income.
American Opportunity Tax Credit
If you meet certain criteria, you also might be able to claim a few education tax breaks. The American Opportunity Tax Credit allows undergraduate college students to claim the first $2,000 and 25 percent of the next $2,000 they spend on tuition, school fees, books, equipment and other non-living expenses as itemized deductions. The same MAGI requirements that apply to the Student Loan Interest Deduction also apply to the American Opportunity Tax Credit.
Lifetime Learning Credit
While the American Opportunity Tax Credit only applies to undergraduate college students, the similarly beneficial Lifetime Learning Credit can be claimed by college and vocational students. The Lifetime Learning Credit allows eligible students to claim up to 20 percent of the first $10,000 they paid toward tuition and school fees. Eligible students can claim 100 percent of the Lifetime Learning Credit if your MAGI is less than $55,000 – or $110,000 if you’re filing a joint return. If your MAGI is between $55,000 and $65,000 or – or $110,000 and $130,000 if you’re filing a joint return – you can claim a reduced credit. If your individual or joint MAGI exceed the previously listed income range, you’re not eligible for this credit.
If You’re a Dependent
You can be claimed as a dependent if you are 19 years old or younger, live with your parents for at least half the year and they provided for at least half of your financial needs. You can also be claimed as a dependent if you are 24 years old or younger and you’re a full-time college student.
If you earned at least $6,300 in 2016, you have to file a return, even if you’re being claimed as a dependent by your parents. If you are a dependent, you can’t claim yourself on your return or any credits or deductions, but your parents can take advantage of the Student Loan Interest Deduction, American Opportunity Tax Credit or Lifetime Learning Credit.