College students, parents may reduce taxes based on college expenses

USA Funds helps families identify potential tax savings

INDIANAPOLIS — USA Funds^®, the nation’s leading education-loan guarantor, advises college students, former students and their parents that they may be able to reduce their federal income-tax bills if they paid college expenses during 2004.

In recent years the U.S. Congress has enacted measures that have expanded federal income-tax benefits for families that pay tuition, fees and other higher-education expenses,” said Carl C. Dalstrom, USA Funds president and CEO. “USA Funds urges taxpayers to consider potential tax benefits that may apply to them as they prepare their 2004 income-tax returns.

Among the changes in higher-education tax benefits for the 2004 tax year are the following:

Deduction for higher-education expenses. The maximum deduction for qualified tuition and fees paid by a taxpayer has increased to $4,000 from $3,000. Taxpayers whose incomes exceed the limits to qualify for the Hope and Lifetime Learning tax credits may consider this deduction. The maximum deduction is available to single taxpayers with modified adjusted gross incomes of $65,000 or less, or married taxpayers with incomes of $130,000 or less. Single taxpayers with incomes greater than $65,000 but not more than $80,000, and married taxpayers with incomes greater than $130,000 but not more than $160,000, may qualify for a deduction of up to $2,000. Taxpayers don’t have to itemize their deductions to claim this benefit.

Student-loan-interest deduction. Taxpayers who paid interest on qualified student loans during 2004 may be eligible to deduct up to $2,500 from their taxable income.

Other higher-education tax benefits. Taxpayers also should consider potential tax savings based on distributions from so-called 529 college-savings plans and Coverdell Education Savings Accounts, as well as employer-paid education benefits.

To help students and parents take advantage of these benefits, USA Funds offers a brochure “Higher-Education Tax Benefits — Expanded Taxpayer Savings,” which is available free of charge from many postsecondary institutions and education lenders. Download a PDF file of the brochure.

USA Funds recommends that taxpayers consult with a qualified tax adviser or the Internal Revenue Service to determine their eligibility for any of these tax benefits.