You may be able to claim an education loan interest deduction if you meet income and other eligibility guidelines. This deduction is an adjustment to income, so, if you qualify, you can claim it even if you do not itemize your deductions on Schedule A (Form 1040).

The American opportunity credit (for tax years 2011 and 2012) and the lifetime learning credit, also referred to as education credits, are federal tax credits available to eligible individuals who pay higher education costs. A tax credit reduces federal income tax liability.

The tuition and fees deduction (for tax year 2011) reduces the amount of income subject to taxation. You do not need to itemize deductions to claim this benefit.

Only one benefit can be claimed for a student. Tax filers who qualify for both a tax credit and the tuition and fees deduction can choose the one that will result in a lower tax.

Students can claim a tax benefit by paying qualified expenses at an eligible institution for themselves, if they are not claimed as a dependent by another person, or for a spouse. Parents can claim a tax benefit by paying qualified expenses for a dependent child at an eligible institution. The student must be listed as a dependent on the parent’s tax form.

To claim a benefit in the 2011 tax year, qualified education expenses must be paid in 2011 for an eligible student for an academic period beginning in 2011 or in the first three months of 2012. A benefit cannot be claimed if your tax filing status is married filing separately.

• This is a tax credit of up to $2,500 for qualified education expenses per year for each eligible student. The first $2,000 paid qualifies for a 100 percent tax credit; the next $2,000 paid qualifies for a 25 percent tax credit.
• Forty percent (40%) of the American opportunity credit is refundable. Tax filers who owe no tax can get an annual payment of up to $1,000 for each eligible student.
• Students must be enrolled at least half time in their first four years of undergraduate education pursuing a degree or other recognized education credential.
• Students must have no record of felony drug convictions.
• Qualified expenses include tuition, expenses for course materials (whether or not they are purchased from the educational institution as a condition of enrollment or attendance), and certain related expenses required for enrollment. They do not include the amount of tuition and related expenses paid for by tax-free grants and/or scholarships.
• Eligibility decreases for modified adjusted gross income starting at $80,000 (filing single) and $160,000 (married, filing jointly). Families cannot claim an American opportunity credit if their modified adjusted gross income is above $90,000 (filing single) or $180,000 (married, filing jointly).

The American opportunity credit is scheduled to expire at the end of the 2012 tax year.

• This is a credit of up to $2,000 per tax return (covering all students in the household) per year for qualified higher education expenses.
• Available for all years of postsecondary education and for courses either to acquire or improve job skills. There is no limit on the number of tax years the lifetime learning credit can be claimed.
• This credit can be claimed for 20% of the first $10,000 of qualified education expenses paid, up to $2,000.
• Students do not need to be pursuing a degree or other recognized education credential.
• The credit is available for one or more courses.
• The felony drug conviction rule does not apply.
• Qualified expenses include tuition and certain related expenses that are required for enrollment and must be paid to the institution. They do not include the amount of tuition and related expenses paid for by tax-free grants and/or scholarships.
• Eligibility decreases for modified adjusted gross income above $50,000 (filing single) and $100,000 (married, filing jointly). Families cannot claim a lifetime learning credit if their modified adjusted gross income is above $60,000 (filing single) or $120,000 (married, filing jointly).
• Students or parents benefit from tax credits up to the amount of their federal income taxes. If no taxes are paid, no tax credit is received.

The tuition and fees deduction allows an eligible tax filer to deduct qualified higher education expenses paid during the year. This deduction is taken as adjustment to income and can reduce the amount of income subject to tax by up to $4,000, depending on the amount of your modified adjusted gross income. You can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial if you cannot take the lifetime learning credit because your income is too high or if it results in a lower tax.

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. Your modified adjusted gross income cannot be more than $80,000 ($160,000 if filing a joint return).

The tuition and fees deduction is scheduled to expire at the end of the 2011 tax year.

Generally, qualified expenses are amounts paid in 2011 for tuition and certain related expenses (including student activity fees) at an eligible educational institution. For the lifetime learning credit and the tuition and fees deduction, course materials may be included only if they must be paid to the institution as a condition of enrollment or attendance. Qualified expenses do not include amounts paid for insurance, medical expenses (including student health fees), room and board, transportation, or other similar personal, living, or family expenses. Qualified education expenses also do not include expenses related to sports, games, hobbies, or any noncredit courses, unless the activity is part of the student’s degree program.

Qualified expenses do not include expenses paid for by any tax-free education assistance or any refunds of qualified expenses. Tax-free education assistance includes a tax-free scholarship, Pell grant, or tax-free employer-provided education assistance.

In order to be eligible for the American opportunity credit, a taxpayer’s modified adjusted gross income cannot be more than $90,000 for single filers or $180,000 for joint filers.

In order to be eligible for the lifetime learning credit, a taxpayer’s modified adjusted gross income cannot be more than $60,000 for single filers or $100,000 for joint filers.

In order to be eligible for the tuition and fees deduction, a taxpayer’s modified adjusted gross income cannot be more than $80,000 for single filers or $160,000 for joint filers.

(Your modified adjusted gross income is your adjusted gross income as figured on your federal tax return, unless you have income earned abroad or from certain U.S. territories or possessions.)

You are not eligible for any of these tax benefits if you are married and filing a separate return.

You can claim only one of the tax credits or the tuition and fees deduction; no double benefits are allowed. See IRS Publication 970 for more information.

You will need either of the following:

• IRS Form 8863 (Education Credits), which is used to calculate the education tax credit; or
• IRS Form 8917 to claim the tuition and fees deduction

Both forms are filed with your federal income tax Form 1040 or Form 1040A.

If you had qualified tuition and related expenses in 2011, you should receive an IRS Form 1098-T from your school by January 31, 2012. On the Form 1098-T, the school reports either payments received (box 1) or amounts billed (box 2) for qualified education expenses. The Form 1098-T provides additional information to assist you in calculating your qualified tuition and related expenses. Compare your records to the information on the Form 1098-T, as you may have benefited from tax-free education assistance not reported by the school.

• Consult a tax advisor.
• Download IRS Publication 970, Tax Benefits for Education, from www.irs.gov .
• Online at the IRS Tax Benefits for Education Information Center, which can be accessed from www.irs.gov.
• Talk with an IRS staff person by telephone at 800-TAX-1040 (800-829-1040).