New Developments for Education Tax Credits

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On July 24, 2014, the U.S. House of Representatives approved the Student and Family Tax Simplification Act, “designed to make it easier and simpler for families to afford the costs of higher education by consolidating four separate tax provisions into one improved and more robust education tax benefit.” The Hope Credit, American Opportunity Tax Credit, the Lifetime Learning Credit and the Tuition Deduction are now the new American Opportunity Tax Credit.

The new expanded American Opportunity Tax Credit (AOTC) includes the following provisions:

  • Eligibility – Similar to the existing AOTC (set to expire at the end of 2017), the expanded credit would be available for up to four years of post-secondary education at qualifying four-year universities, community colleges, and trade and vocational schools.
  • Filing Thresholds – The credit is geared towards low- and middle-income families and begins to phase out between $160,000-$180,000 (50% of these amounts applicable to single filers).
  • Calculation of the Credit Amount – Maximum credit $2,500

o   100% for the first $2,000 of eligible expenses ($2,000)

o   Plus 25% for the next $2,000 of eligible expenses ($500)

  • Refundable vs. Nonrefundable – The first $1,500 of the credit would be refundable, meaning that the taxpayers will receive benefit regardless of whether they have a federal tax liability.

Even though the legislation cleared the House on a 227-187 vote, many House Democrats and the White House opposed the bill because they said it would add to the deficit and was not offset by increases in revenue elsewhere in the federal budget.

In addition, a number of educational groups signed a letter from the American Council on Education (ACE) opposing the bill. The letter stated that the bill would negatively impact many low- and middle-income students by eliminating Hope and Lifetime Learning credits since many of those students are adult learners and take longer than four years to complete their degrees.

Stay tuned for future developments.

For more information on how you can minimize tax liability and take advantage of incentives like the AOTC, please contact your Aronson tax advisor or Anatoli Pilchtchikov at 301.231.6200.

About Anatoli Pilchtchikov

Anatoli Pilchtchikov has written 14 post in this blog.

Anatoli Pilchtchikov is a senior manager in Aronson’s Personal Financial Services Group, where he specializes in tax compliance and consulting for high net worth individuals and their families, corporate executives and business owners. Working closely with clients and their investment and legal advisors, Anatoli plans and implements strategies designed to effectively achieve financial and estate planning objectives. As a trusted member of a client’s advisory team, he helps integrate financial plans with sound tax guidance in the areas of retirement and estate planning, risk management and investment planning.

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