THE Tax Cuts and Jobs Act saves the student loan interest deduction and keeps tuition waivers for graduate students tax-free. It also expands 529 savings accounts to include private K-12 education. Let’s discuss further.
1. American Opportunity and Lifetime Learning credits remain the same: Both American Opportunity Credit and the Lifetime Learning Credit remain the same. The American Opportunity Credit provides tax benefits up to $2,500 per student for each of the first four years of college and is gradually reduced once your modified adjusted gross income reaches $80,000 for singles ($160,000 for couples) and completely phased out for singles who earn more than $90,000 ($180,000 for couples). The Lifetime Learning Credit of $2,000 is available to people under a lower income cap, but can be claimed for each year you stay enrolled in college.
2. Student loan interest deduction survives: You will still be allowed to claim a deduction of up to $2,500 for interest paid on your student loans each year. It can be claimed without itemizing your taxes. The benefit is reduced when your modified adjusted gross income reaches $65,000 for singles ($135,000 for couples) and completely phased out for singles who earn more than $80,000 ($165,000 for couples).
3. raduate tudent uition waiver tax saved: The bill spares graduate students from having to pay income tax on tuition waivers for teaching and research assistants.
4. Employer tuition reimbursement remains tax-free: Employers can give workers up to $5,250 tax-free to help pay for tuition. This award remains tax-free.
5. 29 savings accounts expanded to cover K-12: Under old law, money invested in a 529 account that grows tax-free can only be used for college expenses. New law expands the use of 529 savings accounts to include elementary and high school education. The Act allows $10,000 to be distributed annually for public, private or religious elementary or secondary school. The funds could also be used for home schooling. The changes applies to distributions made starting January 2018.
6. Death and disability loan forgiveness tax repealed: The bill excludes student debt forgiveness from taxable income for the borrower who become permanently disabled. It also excludes forgiveness in the event of death if there is a co-signer on the loan. It will apply to federal and state student loans discharged starting January 2018.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].