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Can't get tax credit? Maybe your kid can

Parents whose incomes are too high to qualify for the college tuition tax credits should see if their children qualify.

By MSN Money Partner Mar 16, 2012 12:30PM

This post is by Bill Bischoff of SmartMoney.


If you earn a healthy income, you probably don't qualify for the higher-education tax credits intended to help pay college-tuition bills. However, your college-age child just might.


Image: College student (© Stockbyte/Getty Images/Getty Images)Both the American Opportunity credit (maximum $2,500 for 2011) and the Lifetime Learning credit (maximum $2,000) help soften the cost of postsecondary education. The American Opportunity credit is available only for the first four years of college, while the Lifetime Learning credit can be used at any time and doesn't have a degree or workload requirement.


Unfortunately, you can't take both credits for the same student in the same year, and many parents earn too much to be eligible for either one. That's because in tax year 2011, the American Opportunity credit is phased out starting at an adjusted gross income, or AGI, of $160,000 for joint filers and $80,000 for unmarried individuals. At AGI levels of $180,000 and $90,000, respectively, the credit is completely phased out.


The Lifetime Learning credit is phased out starting at AGI of $102,000 for joint filers and $51,000 for unmarried individuals. At AGI levels of $122,000 and $61,000, respectively, you're completely ineligible. As you might imagine, plenty of parents fall into the phased-out category. But even if you're among them, these valuable credits may not have to go to waste. (Post continues after video.)

Here's how: Arrange things so your college-age child can claim one of these credits instead of you. To implement this strategy, you must forgo the dependency exemption deduction for your child ($3,700 for the 2011 tax year). Then the education tax credit becomes the property of your child, whose income is presumably well below the phase-out range.


The now-liberated education credit can cut your college-age child's tax bill by quite a bit. Remember, however, the credit is worthless to your child unless he or she has enough taxable income to actually owe the Internal Revenue Service. This income could be from summer jobs, work-study at school or income and gains from investments held in your child's name.


You should give up the exemption deduction only if the credit is worth more to your child than the exemption deduction is worth to you. (This strategy does not permit your child to claim an exemption on his or her return; the exemption belongs to you whether you choose to use it or not.)


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Mar 19, 2012 2:28PM
yunaire its not about gaming the system Its about paying for my child and not covering half the bill for someone else
Mar 27, 2012 7:55AM
why am i being charged $40.00 for under paying my 2011 taxes ,is it because i have extra money with held and it is not enough .if i had nothing extra taken out of my pay would i still be charged this money ?
Mar 20, 2012 5:19PM
I don"t know how your 1099 is written but mine is in my kids name and ss.  The can use the 1099 if they have eligable income.  If you don't earn anything. you don't get taxednor do you receive a credit.  But your not gaming the systen if you use it. Jeas yuou nbuncdh of yeahoo's . You get screwed every year and ask for more vas. Ask your congressman what his effective tax rate is  and I bet its lower than yours. My local Republican made a million on immoral stock trades with inside info. A tea party!  Use the credit if you have it. I paid for my edu and my kids !  enough  TW
Mar 16, 2012 7:38PM
2011 tax year has a credit that student can take even without income.  Is this not correct? 
Mar 16, 2012 4:08PM
This article is about rich people trying to game the system to get some free money from the govt.  If you have the money...just save it up and pay the tuition bills.  What a concept!
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