EDUCATION
President Obama emphasized during his campaign the need to continue improving
education across the nation. The thrust of the Obama Administration’s tax
incentives for education during his first term has focused on higher education
and job retraining programs. The President, however, also does not want
Congress to curtail certain funding of public education, a spendingside issue
that may be considered in negotiating the extension of current tax breaks. In
addition to supporting renewal of the above-the-line higher education tuition
deduction, the following education tax breaks are currently also up for
renewal:
American Opportunity Tax Credit
President Obama campaigned on making permanent the temporary American
Opportunity Tax Credit (AOTC). The AOTC, which is an enhanced version of the
HOPE education credit, is scheduled to expire after 2012.
IMPACT.
The AOTC applies to 100 percent of the first $2,000 of qualified tuition and
related expenses and 25 percent of the next $2,000, for a total maximum credit
of $2,500 per eligible student. Additionally, the AOTC applies to the first
four years of a student’s post-secondary education. The AOTC also allows for
partial refundability for qualified taxpayers.
Comment
If the AOTC expires, it will be replaced by the traditional HOPE education tax
credit.
Coverdell ESAs
After 2012, the $2,000 annual contribution amount for Coverdell education
savings accounts (Coverdell ESAs) is scheduled to revert to $500. At the same
time, the expanded definition of qualified education expenses for elementary
and secondary school would also expire.
Student loan interest deduction
Under current law, certain enhancements to the student loan interest deduction
are scheduled to expire after 2012. If not extended, the incentive would only
be available for the first 60 months after repayment begins and would phase-out
for taxpayers with adjusted gross income between $40,000 and $55,000 ($60,000
and $75,000 for married couples filing joint returns).