Whether you’re a college student or graduate the fiscal cliff deal was going to be the decision maker between eating ramen noodles or mac n’ cheese. The expiration of the American Opportunity Tax Credit (AOTC) for parents meant the difference between taking a vacation or a staycation.
Now everyone can breathe a sigh of relief because the final deal was one that would make almost everyone happy. By everyone we mean anyone who is dealing with paying for college or paying for a student loan; we’re almost certain there are plenty of people who are not happy about the deal to say the least. In case you don’t know, here is how the extended tax credits for college students and parents is helping families paying for college.
1. The AOTC has been extended through 2017; families with a child in college may be eligible for a $2,500 credit for up to four years. The income for eligible families was also raised to $80,000 for single filers and $160,000 for joint filers. This means more families may be eligible to cash-in on the extended credit.
2. If you’re one of the lucky people paying back a student loan you can rejoice that you’ll be able to deduct up to $2,500 of the interest you paid per year, for the life of the loan. Before you could only get the interest deduction for five years, now the majority of you will be probably be eligible for the deduction for at least 10 years.
3. Parents who are saving early using a Coverdell Education Savings Plan (ESA) might be encouraged to continue saving since the previously temporary terms have been made permanent. This includes the $2,000 savings contribution limit and the ability for parents to use an ESA to save for elementary and secondary schooling rather than just saving for college.
Student loan debt is still on the rise so for now the help of an interest deduction on your taxes is as good as it gets for both parents and students. Get more information about the different education benefits that have been extended at The Wall Street Journal.