College tax credit options abound in post-flood Iowa

College students in flood-recovering Iowa counties may need all the education they can get to sort through all the tax benefit options this year for post-secondary education expenses.

Last year at this time, it appeared to students attending Corridor colleges and universities covered by the Midwest disaster relief measures enacted by Congress last year should simply utilize the post-secondary education benefits of that legislation.

It seemed like a pretty sweet deal if you qualified.

The tax “enhancers” for the Midwest doubled the maximum credit taxpayers could receive under the Hope education credit, from $1,800 to $3,600, and the maximum credit under the Lifetime Learning credit from $2,000 to $4,000. The enhancements also allowed students or their parents to claim room and board expenses that didn't previously qualify.

This year, using the Midwest disaster enhancers is “no longer a slam-dunk,” according to Kristy Maitre, senior stakeholder lisaison for the Internal Revenue Service in Des Moines.

The new American Opportunity Credit may actually be a better deal for some taxpayers, Maitre said.

The new American Opportunity Credit goes up to $2,500 per year per student - not as much as the Lifetime Learning and Hope Credits using the disaster enhancements. But it has higher income limits than either the Hope or Lifetime Learning credits. For a single head of household, the credit doesn't begin phasing out until $80,000 of adjustable gross income, and goes away at $90,000, and for a married couple filing jointly, the phaseout begins at $160,000 of income and ends at $180,000.

Another advantage of the American Opportunity Credit is that it targets the first four years of post-secondary education expenses, not just the two years allowed by the Hope credit.

Lower earners may still be better off using the Hope or Lifetime Learning credits with the Midwest disaster enhancers. But they first check an IRS list to see if their university or college qualifies. Eligibility is based on the location of the educational institution, not whether the applicant lived in a flood zone.

“I worked the Cedar Rapids disaster, and there were plenty of questions about this,” said Maitre, who works with accountants and tax practitioners to help them understand and interpret tax laws.

The Lifetime Learning credit may get a lot of play this year, because many unemployed

IRS spokesman Christopher Miller said taxpayers have plenty of things to think about this year besides post-secondary education treatments.

The first-time homebuyer credit ends on Nov. 30, and the new vehicle tax deduction ends Dec. 31. The $2,400 exclusion from tax for unemployment compensation is also coming to an end. But Miller says post-secondary education tax treatments are especially worthy of study, especially for low-income and higher-income taxpayers in the Midwestern flood areas.