The Tax Code provides a number of provisions designed to help individuals and families pay for college, including education credits like the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC) that help reduce the tax owed by individuals.
With the rising cost of college and higher education, it’s important to know all the higher education tax benefits available.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: If Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, is used, does the custodial parent or the parent claiming the child get the American opportunity tax credit (AOTC)?
A: The parent claiming the child as a dependent gets the AOTC.
Q: If grandparents started a 529 plan and used it to pay the grandchild’s college expenses, how is this handled on their tax return considering the grandchild isn’t a dependent?
A: The 529 plan distribution is nontaxable if it was used for qualified education expenses of the designated beneficiary (grandchild), even if the grandparents don’t claim the grandchild as a dependent. When the entire distribution is nontaxable, the grandparents don’t report anything on their tax return.
Q: If the taxpayer only signs up for one course at an eligible college, do they still qualify for the lifetime learning credit?
A: Yes. The lifetime learning credit is available for one or more courses.
Q: Does beauty salon school qualify as a vocational school?
A: Yes, if the school is eligible to participate in federal financial aid programs, it qualifies.
To learn more about helping clients plan for higher education, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.