Making Education Pay at Tax Time

RESTON, Va., Feb. 27  /PRNewswire/ -- It's a subject most of us dread: filing our tax return. But for people with higher education expenses, tax time can pay you -- in some cases even thousands of dollars.

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According to the College Board, 6.5 million taxpayers claimed about $3.8 billion in deductions for interest paid on student loans, generating between $500 and $700 million in tax savings in 2004.

In late 2006, Congress renewed three key deductions affecting millions of taxpayers. One of those deductions was for qualified higher education expenses.

"When it comes to filing your tax returns, do your homework so you don't inadvertently leave money on the table," says Martha Holler, Sallie Mae spokeswoman.  "These deductions and credits translate into real savings and help reduce the cost of college."

For the 2006 tax year, there are four education-related tax benefits: the Tuition and Fees Tax Deduction, the Student Loan Interest Tax Deduction, the Hope Credit and the Lifetime Learning Credit.

Qualified tuition and fees paid during 2006 can be deducted for individuals, a spouse, or a dependent. This provision, previously set to expire last year, means individuals can deduct up to $2,500 in student loan interest and $4,000 in expenses for tuition, registration fees, and other required fees. You don't have to itemize to be eligible for this deduction, but how much of a deduction you receive depends on your income level.

Remember, tuition deductions cannot be taken on expenses for which you also are claiming an education credit, such as the Hope Credit. Rather, you must choose one or the other if you qualify for both.

Tax credits, which reduce dollar-for-dollar the amount of tax an individual pays, also can provide substantial tax savings. There are two education-related credits available for 2006: the Hope Credit and the Lifetime Learning Credit.

The Hope Credit allows up to a maximum $1,650 tax credit for freshmen and sophomores and can be claimed for two years.  The Lifetime Learning Credit provides a tax credit of up to $2,000 per family for anyone in college. Unlike the Hope Credit, the Lifetime Learning Credit is available for all years of postsecondary education and for courses to acquire or improve job skills.

Additional information on 2006 higher education deductions and credits can be found in IRS Publication 970, "Tax Benefits for Higher Education," available at the IRS Web site at http://www.irs.gov/. 

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DATASOURCE: Sallie Mae



CONTACT:  Beth Guerard of Sallie Mae, [phone]



Web site:  http://www.salliemae.com/ 



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