The Bottom Line

Did you know the IRS indirectly can help pay for your Penn education? I mean very indirectly. Congress, in its infinite wisdom, uses the tax code to provide economic incentives for certain kinds of behavior, such as the pursuit of higher education. The theory goes that a college education produces more productive workers who benefit society, although the current subprime mortgage crisis begs to differ.

There are three types of higher education tax deductions/credits that are most relevant to the average Penn undergrad or parents who claim their student(s) as dependents:

• student loan interest deduction
• tuition and fees deduction
• either the Hope or Lifetime Learning Credit

Disclaimer: The “average Penn undergrad” in these posts refers to a single filer who is a U.S. citizen or permanent resident, does not make more than $70,000 per year, and files form 1040A or 1040EZ.

Student Loan Interest Deduction

If you use loans like Stafford or CitiAssist to pay your SFS bill and have paid interest on those loans in 2008, you may qualify for this deduction against the income reported (summer earnings, etc.). The only interest that can be deducted is the interest that relates to the amounts of the loan used for qualified education expenses. These expenses include tuition/fees, room/board, book/supplies, and transportation if you fly cross-country to get to Penn every year. The maximum amount of interest you can deduct for 2008’s return is $2,500.

If you want clarification or have a general question, email bizexpert[at]dailypennsylvanian[dot]com.

Uncategorized ask the taxpert, higher education, student loans, Taxes