Taking the College Tax Break
Most taxpayers scramble for every break available when it comes to reducing what's owed to the friendly folks at the Internal Revenue Service.
But, tax guru Kevin McCormally says those with a child in college might end up dollars ahead if they don't claim the student as a dependent, especially if the parents' income is too high to claim Hope or Lifetime Learning Credits.
Writing in Kiplinger.com, McCormally says the Hope credit is worth up to $1,500 (indexed for inflation) for each college freshman or sophomore you claim as a dependent. But, if your adjusted gross income is greater than $100,000 on a joint return, you can't claim any of the credit. Your son or daughter could , however. If the student owes more than the value of the exemption -- $850 if you're in the 31 percent bracket -- he or she can claim the credit and offset his or her tax liability dollar for dollar, up to the $1,500 limit. You lose the exemption, but the family comes out ahead on the bottom line.
That strategy could be worth even more, McCormally says, if your adjusted gross income is above $189,950 -- the point at which the law begins to squeeze the value of exemptions.